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How do you do a Journal Entry for a Credit Memo?

 

In this world, everything has stand on the base of anything. For example, the building is standing its base. Big tree stands on its root base. The earth is standing in the sky with gravity of universe base. Like this, accounting base is its fundamental terms knowledge. More you have the knowledge of accounting words, you will become more strong in accounting. 

For passing this simple journal entry for a credit memo. 

You have the base of knowledge of four terms in it

Q: - 1. What is a credit memo?

Q: - 2. What is journal entry? 

Q: - 4. What are the rules of journal entry?

Q: - 5. Which rule will apply on this? 


Come and learn each thing one by one. 

Q: - 1. What is a credit memo?

Credit memo is a credit note. If you are Indian accountant, you know better about credit note than credit memo. And now, passing of journal entry of credit memo will be the journal entry of credit note

Ok, again, revise if you do not know credit note. Credit memo or credit note is a document which is issued by seller to its customer when customer returns the goods due to any reason ( it may be default, it may be incorrect or defective or even in damaged due to transport reason). It is also evidence that sale return means there is decrease in the actual sale both quantity and amount. There are lots of information but one of original invoice reference is must in it. 

Q: - 2. What is journal entry? 

Already written its answer, read at here.

Q: - 3. What are the rules of journal entry?

Already written its answer, read at here.

Read answer 2 and 3 before answer 4 and main answer

Now come to the answer of main question 


In the book of Creditor or Seller 

It is the person who wrote the credit note. It is the person who sold on credit. Now, the goods come to him. So, his stock asset has increased. So, sale return account debit and the buyer to whom he has to take money and now there is no right because he returned the stock, so, seller has to write credit to debtor account because this receivable amount from debtor has decreased. 

Sales return account Debit 

Debtor Account Credit

Now say big

After credit memo

Asset of stock in the pocket of seller has increased

Asset of debtor's receive money has decreased

Law apply 

Assets increases debit

Asset decreases credit

So, you get answer of your 4th question.


If you do not know who is debtor and who is creditor and this entry is impossible. Because you can not understand what is happening. 

So, clear your base

Who is debtor

Who is creditor

by reading our accounting dictionary


In the book of Debtor or Customer or Buyer


Creditor Account Debit

Sale Return Account Credit 


Now, imagine you are buyer and you returned your damaged goods. It means, you have got success to save your money which you have to pay to your seller for damaged goods.

Now, you have passed above entry because

You have decreased Liability

Decrease of liability is also your saving

You have decrease your asset

Say big

Decrease the liability will debit

Decrease the asset will credit.

So, creditor is our liability and now it has decreased because the money payable to creditor will not pay because sale return

Sale return is also decrease our asset because now we have no right on same goods.

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Accounting Education: How do you do a Journal Entry for a Credit Memo?
How do you do a Journal Entry for a Credit Memo?
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Accounting Education
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