Vendor Credit
Definition
A vendor credit reduces the amount the business owes a vendor. It may be issued for a refund, a discount, or a correction to an original bill.
Example
A vendor issues a $100 credit because a product was returned. The bookkeeper records a vendor credit that reduces Accounts Payable by $100.
Why It Matters
Vendor credits keep vendor balances accurate. Without them, the business would overstate what it owes.