Credit memos in the real world


G

GiJeet

Hello, trying to understand EXACTLY how credit memos work. Say I have
a vendor invoice I need to pay but because of issues my vendor has to
give me a credit memo to reduce the amount I owe them. So now, how
does this work? Does my vendor send me a credit memo document (piece
of paper) with a number on it ? I have to enter that on my side of
the transaction but a "credit" on the payables side increases my
liability so do I then create a debit memo? If I have to create a
credit memo in my system, now I have two numbers - my vendors and mine
so what number do I use when I apply the credit memo to my payable.
I'm very confused as to how this works. I need step by step detailed
explanation to understand how this works.

Thanks
Gi
 
Ad

Advertisements

P

paulthomascpa

GiJeet said:
Hello, trying to understand EXACTLY how credit memos work. Say I have
a vendor invoice I need to pay but because of issues my vendor has to
give me a credit memo to reduce the amount I owe them. So now, how
does this work? Does my vendor send me a credit memo document (piece
of paper) with a number on it ? I have to enter that on my side of
the transaction but a "credit" on the payables side increases my
liability so do I then create a debit memo? If I have to create a
credit memo in my system, now I have two numbers - my vendors and mine
so what number do I use when I apply the credit memo to my payable.
I'm very confused as to how this works. I need step by step detailed
explanation to understand how this works.




The credit memo is his. He credits your account to write it down to some
agreed amount. It's how he reconciles the sales amount to the cash received
and bring the balance owed by you to $0. That "credit" reduces the
receivable on his books, which is a debit balance. Hence, credit memo.

If you had booked the payable (a credit balance) at the higher amount, you
would have to reduce that amount owed with a debit memo or by whatever your
system has set up for that purpose.

If you haven't booked the payable, just show your expense or cost or
inventory at the actual amount paid.
 
G

GiJeet

he credit memo is his.  He credits your account to write it down to some
agreed amount.  It's how he reconciles the sales amount to the cash received
and bring the balance owed by you to $0.   That "credit" reduces the
receivable on his books, which is a debit balance.  Hence, credit memo.

If you had booked the payable (a credit balance) at the higher amount, you
would have to reduce that amount owed with a debit memo or by whatever your
system has set up for that purpose.

If you haven't booked the payable, just show your expense or cost or
inventory at the actual amount paid.
I'm really looking for the mechanics of this. That is the physical
exchange of documents or tracking numbers.
Tell me if this is correct. My vendor issues a Credit Memo against my
AP account which for my vendor normally has a debit balance since my
AP account to them is an asset. So a Credit Memo against my AP account
would reduce the amount I owe them. Now what? Do they send me a
physical credit memo document? For example, a payment is something
physical - a check. There needs to be something physical to reference
for future reconciliation or disputes even if it's just a number.
Now, once my vendor issues a credit memo what document do I enter on
my side? I'm more concerned with the logistics and mechanics of how
this exchange works. Thanks
 
Ad

Advertisements

P

paulthomascpa

he credit memo is his. He credits your account to write it down to some
agreed amount. It's how he reconciles the sales amount to the cash
received
and bring the balance owed by you to $0. That "credit" reduces the
receivable on his books, which is a debit balance. Hence, credit memo.

If you had booked the payable (a credit balance) at the higher amount, you
would have to reduce that amount owed with a debit memo or by whatever
your
system has set up for that purpose.

If you haven't booked the payable, just show your expense or cost or
inventory at the actual amount paid.
I'm really looking for the mechanics of this. That is the physical
exchange of documents or tracking numbers.
Tell me if this is correct. My vendor issues a Credit Memo against my
AP account which for my vendor normally has a debit balance since my
AP account to them is an asset. So a Credit Memo against my AP account
would reduce the amount I owe them. Now what? Do they send me a
physical credit memo document?





They should. That would be your record of the price reduction given by
them. Without some document in your hands, how would you prove why you sent
them a smaller amount? What would keep them from trying to collect the rest
of the bill from you in the future?








For example, a payment is something
physical - a check. There needs to be something physical to reference
for future reconciliation or disputes even if it's just a number.
Now, once my vendor issues a credit memo what document do I enter on
my side? I'm more concerned with the logistics and mechanics of how
this exchange works. Thanks




The mechanics of how you enter their credit memo would be in the FAQ section
of your AP software.
 

Ask a Question

Want to reply to this thread or ask your own question?

You'll need to choose a username for the site, which only take a couple of moments. After that, you can post your question and our members will help you out.

Ask a Question

Similar Threads

Help with Real World 0
Credit memo 0
Credit Memos 0
Credit Memo's 2
USA Credit Memos 3
MrBlueSkye: "Meanwhile in the real world..." 0
MOA2007: credit memos 0
negative credit memo 3

Top