A
credit note or credit memo is a commercial document, utilized in business transactions to indicate a reduction in the amount owed by a customer or owed to a supplier. If the customer returns goods to the seller, the
invoice
An invoice, bill, tab, or bill of costs is a commercial document that includes an itemized list of goods or services furnished by a seller to a buyer relating to a sale transaction, that usually specifies the price and terms of sale, quanti ...
previously issued is cancelled, in part or as a whole, with a credit note.
Credit notes act as a
source document for the sales return journal. In other words, the credit note is evidence of the reduction in sales. A credit memo, a contraction of the term "credit memorandum", is evidence of a reduction in the amount a
buyer
Procurement is the process of locating and agreeing to terms and purchasing goods, services, or other works from an external source, often with the use of a tendering or competitive bidding process. The term may also refer to a contractual o ...
owes a
seller under an earlier invoice.
It can also be a document from a
bank
A bank is a financial institution that accepts Deposit account, deposits from the public and creates a demand deposit while simultaneously making loans. Lending activities can be directly performed by the bank or indirectly through capital m ...
to a
depositor to indicate the depositor's balance is being in the event other than a deposit, such as the collection by the bank of the depositor's note receivable.
Features
A credit note lists the products, quantities, and agreed prices for products or services the seller provided the buyer but the buyer returned or did not receive. It may be issued in the case of damaged goods, errors or allowances. In respect of the previously issued invoice, a Credit Memo will reduce or eliminate the amount the buyer has to pay. ''Note:'' A Credit Memo is not to be substituted as a formal document. The Credit Memo rarely contains PO #, Date, Billing Address, Shipping Address, Terms of Payment, List of products with quantities and prices. Usually, it references the original invoice and sometimes states the reason for the issue.
Uses
* To allow the buyer to purchase an item or service from that seller on a future date, i.e. a
gift card
A gift card, also known as a gift certificate in North America, or gift voucher or gift token in the UK, is a prepaid stored-value card, stored-value money card, usually issued by a retailer or bank, to be used as an alternative to cash for pu ...
or store card credit. Credit notes may be issued by a seller as a goodwill gesture to a buyer who wishes to return previously purchased merchandise (instead of cash repayment) in circumstances where the original sales agreement did not include an explicit refund policy for returned items. In such circumstances, a credit note of value equal to the price of the returned item is usually issued, allowing the buyer to exchange their purchase for other items available with the sale.
See also
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Accounting
Accounting, also known as accountancy, is the process of recording and processing information about economic entity, economic entities, such as businesses and corporations. Accounting measures the results of an organization's economic activit ...
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Credit (accounting)
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Debit note
References
{{Authority control
Credit
Accounting source documents