Key Takeaways

A debit memo is a document used to inform customers of adjustments to their account that decrease their balance. In banking, debit memos notify customers of adjustments related to fees such as service charges or bounced-check fees. They are also commonly used in accounting to correct overpayments.

Definition and Examples of a Debit Memorandum

A debit memorandum is an accounting entry that serves as a notice to customers about a decrease in their account balance. It may also be referred to as a debit memo or debit note. Debit memos are frequently used in banking to assess fees or adjust incorrect balances, such as returned check fees, insufficient funds fees, and interest fees.

How a Debit Memorandum Works

In banking, fees are deducted automatically from an account and noted as a debit memorandum on the bank statement. For example, if a $35 service fee is charged, the account balance will be reduced by $35, with the adjustment recorded in a debit memo. Debit memos are also utilized in double-entry accounting to adjust amounts owed by customers, such as in the case of increased costs for goods.

Types of Debit Memorandums

Debit memos on bank statements may be used for various reasons, including bank fees like insufficient funds or overdraft fees. Internal debit memos can offset overpayments or residual balances due to accounting errors. Incremental billings may include a debit memo to correct an originally low invoice amount.

Debit Memorandum vs. Credit Memorandum

A debit memorandum informs customers of a decrease in their account balance, while a credit memorandum notes an increase. In invoicing, a debit memo increases the amount owed to a seller, whereas a credit memo decreases it. Customers must pay under a debit memorandum, while they can use credit to offset future purchases. The transaction is recorded differently by the buyer and seller depending on whether it is a debit or credit memorandum.