Posted in Finance, Accounting and Economics Terms, Total Reads: 718
Definition: Debit Memorandum
There could be a deduction from one’s account apart from cash withdrawal or cheque being honored. There could be a service charge levied or there could be a penalty for some reason. A document is given to the customer stating the debit from the account. This document is termed as Debit Memorandum. This is generally given out along with the Account Statement.
The Effect of Debit memo is similar to that of writing a cheque and followed by a debit in the account
The Debit Memorandum can be issued to a company even in case of unsatisfactory work.
A company X can issue debit memo to Company Y in case they supply defective goods. This aids in maintaining the account books with updated credit and debit entries.
A debit memo can also be issued in case that the seller is charging some extra fees to the buyer. Debit Memorandums are generally avoided due to the hassles of extra costs involved. There is also a chance of tarnishing of the brand reputation. This instrument is generally used in Business to Business (B2B) kind of transactions where there is a line of credit that has been extended between the two parties.