CBSE Class 11 » CBSE Class 11 Study Materials » Accounting » Cash and Credit Memo

Cash and Credit Memo

In this topic, we will learn about the concept of Cash and Credit memo, difference between cash and credit memo, credit vs debit memo and more.

A credit memo is a type of posting transaction that can be used as a payment or decrease on a customer’s invoice. A delayed credit is a non-posting transaction that can be applied to a customer’s invoice later. When a customer’s money is refunded, a refund is a posting transaction that is used. It means that Credit memos are used to reduce a customer’s remaining balance. A cash memo is a document produced by a trader for cash purchases. A paid bill for cash sales is usually referred to as a cash memo. It is a document that states the amount of money received in return for the products sold.

Credit Memo

A credit memo is a type of document sent by a supplier to a customer showing that the money due to the seller has been reduced. In the case of a cash sale, it denotes the amount of benefit given to the client by the supplier. Credit Memorandum is the standard term for a credit memo, which is sometimes known as a ‘Credit Note.

Components of Credit Memo

A credit memo usually contains several key pieces of information. The purchase order number, as well as the payment and billing terms, are usually included on credit memos.

On a credit memo, you’ll find your name and address, a list of items, prices, quantities, and the date of purchase, among other things.

All of this information helps a seller in inventory management. It also explains why the credit memo was sent.

Credit Memo Example

Rajesh Enterprises buys items worth INR 1,00,000 from Priya Ltd. Rajesh Enterprises found INR 10,000/- value of products were damaged and informed Priya Ltd via Debit Note or Memo at the time of actual delivery.

Priya Ltd (seller) issues a credit note in the name of Rajesh Enterprises Ltd for INR 10,000/-. (buyer). The seller’s receivables are reduced by INR 10,000, and the buyer just has to pay INR 90,000.

Information About Credit Memo

A credit memo is a document that provides a lot of important information. The purchase order (or PO) number, as well as payment and billing terms, are usually included on credit memos. Other important pieces of information on a credit memo are the shipping address, a list of items, prices, quantities, and the date of purchase. All of this information helps a seller in inventory management. The reason for issuing the credit memo is already included in this document.

Reasons for Using Credit Memos

A seller may issue a credit memo to a buyer for a variety of reasons. The buyer returning a purchased item to the seller is a common motive. The item may be damaged, the incorrect size or colour, or the buyer may have easily changed his or her mind about the purchase. Another reason a seller might give a credit letter is if the price changes. For example, a consumer may acquire a product one day before it is reduced by 30% in price. The seller agrees to give the buyer a credit memo for the difference between the old and new sale prices.

Purpose of Credit Memo

A credit memo is a commercial document sent by a supplier to a customer showing that the money due to the seller has been reduced. In the case of a cash sale, it denotes the amount of benefit provided to the client by the supplier.

Cash Memo

A cash memo is a sort of document that is used to keep a record of money transfers between buyers and sellers. In the case of a cash sale, the seller generates a cash memo and hands it over to the buyer. It’s the company’s official record of all-cash sales. Because the buyer keeps the original and the seller keeps the duplicate, it is prepared with a duplicate copy. This helps the seller keep track of all of their cash sales, reconcile their accounts, pay their taxes, analyse their data, plan their inventory, and manage their cash flow. It can be thought of as the financial equivalent of an invoice.

Role of Cash Memo

Invoices, which are also used to record sales transactions, are not the same as cash memos. The fundamental difference between a cash memo and an invoice is that a cash memo only records cash sales, whereas an invoice only records credit sales. A cash memo is a useful tool for firms to manage their finances and sales.

For all-cash sales, the company saves a duplicate copy of the cash memo as documentation. Cash memos are kept in the seller’s cash book and are used to remove any doubt regarding cash transactions by writing them down. The buyer will give the document to the accountant, who will create a payment voucher and file it for record keeping. It will make it impossible for the buyer to pay for the same.

Conclusion

A credit memo is a type of posting transaction that can be used as a payment or decrease on a customer’s invoice. A cash memo is a document produced by a trader for cash purchases. A paid bill for cash sales is usually referred to as a cash memo. A credit memo is a commercial document sent by a supplier to a customer showing that the money due to the seller has been reduced. A cash memo is a sort of document that is used to keep a record of money transfers between buyers and sellers. A cash memo is a useful tool for firms to manage their finances and sales.

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Frequently Asked Questions

Get answers to the most common queries related to the CBSE Class 11 Examination Preparation.

What is Credit Memo?

Answer. A credit memo, also known as a memorandum, is a document issued by a seller that reduces the accountÂ...Read full

What is a Cash memo?

Answer. A cash memo is a type of document that is used to keep a record of mon...Read full

What is the main difference between Credit and Cash memo?

Answer. A cash memo is a document issued by a trader for the purpose of making...Read full