Credit Memo and Debit Memo in AP

ap1 create new tag

What is the Difference between Credit Memo and Debit Memo is Account Payables?

Answer:

CREDIT MEMO is issued by the supplier. suppose there are errors in the invoice sent to the customer or there is a problem with the shipment or if the supplier wants to give some credit back that he got from the freight carrier then this memo will be issued to decrease the amount specified in the original invoice sent to the customer. here, the supplier balance will reduce means the amount we are liable to pay to the supplier reduces. We are going to pay less than what is on the original invoice by applying this credit memo to the standard invoice.

DEBIT MEMO is issued by us (Customer). If there is a defect in the goods, then along with the goods customer will send a debit memo to supplier (usually sent out with a note specifying the reason why you are creating a debit memo). so here the supplier balance will reduce in this case also.

So both the Credit memo and Debit memo would decrease the liability amount that we have to pay the supplier but the only difference is the ORIGIN. Credit memo is created by the supplier and sent to us which we apply to the invoice. Debit memo is created by us and we apply to the invoice before paying to the supplier.

Let me give an example. If the invoice amount is $1000, if the supplier gets some credit of $100 on the freight he has used, then the supplier would raise a credit memo for $100 and send to you. So you apply this $100 credit memo to the standard $1000 with would reduce to $900 and then pay only $900.

Now, let us take the example of debit memo, if you find that there are some defective goods which could be around $250 out of the $1000 standard invoice you have sent, then you will raise a Debit memo on your side for $250 and apply it to the original invoice which would reduce the liability amount to $750 which you finally pay. usually Debit memo is send out with a note with reason why you have created it. some times there could be a dispute if the supplier does not agree on this.

-- SudhirKandagatla - 08 Jan 2009

Comments

Links

• Related: AccountsPayable

Was This Topic Useful to You?