Credit Memo Definition
A Credit Memo (short for "credit memorandum") is a commercial document issued by a Seller to a Buyer, indicating the products, quantities and agreed prices for products or services that the Seller provided the Buyer with, but Buyer returned. It may also be issued in the case of errors or allowances. A Credit Memo can reduce or eliminate the amount that the Buyer has to Pay the seller as per the Invoice issued earlier.
The Credit Memo usually contains: PO #, Date, Billing Address, Shipping Address, Terms of Payment, List of products with quantites and prices. Usually it also references the original Invoice and sometimes it states the reason for issuing it.
Credit Memos are sometimes called just Credits.
The seller usually issues a Credit Memo for the same or lower amount than the invoice, and then refunds the money to the buyer.
Also, the term may refer to the document provided by a bank to a depositor to indicate that the depositor's balance is being increased because of some event other than a deposit, such as the collection by the bank of the depositor's note receivable.