Credit Memo
Definition
A credit memo is a document that reduces the amount a customer owes. It may be issued for a refund, a discount, or a correction to an original invoice.
Example
A customer returns a $100 product. The bookkeeper issues a credit memo that reduces the customer's balance by $100 and reduces revenue by $100.
Why It Matters
Credit memos keep customer balances accurate. Without them, the business would overstate what the customer owes.