What is a Debit Memo? Types, Uses, and Definition

You are here:
Blog summary

A debit memo or debit note is a notice that clients receive when their account balance has decreased and needs to be rectified. Read on to know more about it.

In banking, fees are deducted from an account automatically, and the debit memo is recorded in the customer’s bank account statement. The most frequent debit memos are for:

  • Returned check fees
  • Insufficient funds fees
  • Equipment rental fees
  • Interest fees
  • Check printing fees
  • Corrections to improper deposits

Credit memorandum and debit memos can be used to change a customer’s account balance. A customer’s debt increases with a debit memo, while a credit memo reduces the accounts receivable balance.

Now, let’s dig deeper into it to know exactly what it is, how it works, and much more.

What is a Debit Memo?

A debit memo, alternatively known as a debit memorandum, is a notice that clients receive when their account balance has decreased and needs to be rectified. Instead of a traditional transaction, an adjustment is notified to you via a debit memo. 

Examples and Definition of a Debit Memorandum

An entry that informs clients of a modification or adjustment to their account that lowers the balance is referred to in accounting as a debit memorandum.

The debit memo and debit note are two alternative names. In certain circumstances, a debit memo is typical in the banking business. When a bank charges fees, for instance, a bank can send a debit memo to a specific bank account. 

To show that the fee is an adjustment rather than a transaction, it will be debited (or subtracted) from the customer’s account and recorded as a debit memorandum. It is also possible to rectify an inaccurate account balance using a debit memo.

How Does a Debit Memo Work?

Since the term debit memo contains the word “debit”, which refers to the amount on a ledger’s left side, it is simple to recall what it signifies (when there is no other meaning to the debit).

It’s crucial to remember that the account is debited in the sender’s records, not the recipient’s when it comes to the entire phase debit memo. 

Because of this, the debit frequently behaves differently from what the recipient’s records might indicate. With that in mind, it is clear why debit still refers to a left-side amount alone.

In banking, fees are deducted from an account automatically, and the debit memo is recorded on the account’s bank statement. 

    For example, if your company has $5,000 in its checking account and the bank assesses a $35 service fee, the account balance will be decreased by $35 to $4,965, and the decrease will be reported in a debit memo. 

Similar debit notices may be shown, for instance, for fees associated with returned or printed checks.

In double-entry accounting, debit memorandums are also used to record adjustments that raise a customer’s balance owed. 

    For example, if a customer purchased and paid for $2,000 worth of lumber in April, then the price of the lumber climbed to $2,100 when it was delivered in June, a debit memo may be given for the $100 difference in price. 

    The customer would add $100 to their accounts payable, and the supplier would add a debit memo for $100 to their accounts receivable.

Start Getting Paid Today

Use Invoiceowl and send invoices to your clients either for partial or full payment

CTA arrow

Elements to Include in a Debit Memo

A debit note is a commercial seller’s, buyer’s, or financial institution’s notification of a debit placed on a recipient’s account in the sender’s books.

  • To request a reduction in the amount owed to a seller, such as when returning faulty goods, the buyer issues a debit memo and debits Accounts Payable
  • When the customer pays an incremental amount that differs from the amount previously invoiced (either because of a typographical error or a price change), the seller issues a debit memo and debits the customer account.
  • The banks issue a debit memo and deduct the customer account to lower the balance of a depositor’s account, as when fees are assessed for maintaining client accounts.

Types of Debit Memos

    1. Bank statement debit memos

    Bank Statement Debit Memos

    A bank might utilize a debit memo to reduce the customer account balance. Inadequate funds, overdraft fees, bank service fees, and check printing costs are a few reasons a bank might withdraw money from an account. Among all the usage listed in this section, bank transactions make the most use of debit memos.

    2. Internal offsets using debit memos

    A debit memo can be used to reverse the overcharges made to the customer account. This enables the accounting division to resolve it by returning the memo to the client.

    A debit memo can also be used to correct an accounting error that resulted in a residual balance if the additional money in a customer’s account is that.

    3. Incremental billings in debit memos 

    With the incremental adjustment, you can issue a debit memo when an initial invoice is sent with a low amount. This approach is uncommon because most businesses reissue an invoice with the updated amount.

When to Create a Debit Memo? 

You can create a debit memo to reflect a charge for an item that isn’t a typical invoice item. Debit memos frequently include revisions or modifications to previous bank transactions. 

Your debit memos are made for: 

  • Put in a price adjustment for a line item or the tax figure from the initial invoice.
  • Include a necessary charge omitted from the initial invoice, such as freight. 
  • After reversing a receipt, create a debit memo reversal to note the net amount of a completed debit and credit transaction. Add late fees to a client’s account or customer site. 
  • The application generates one debit memo entry for each overdue transaction if you choose to record late fees as debit memos. The debit memo includes line items for any assessed fines and late payment fees.

Get Your Free Plan Access

Explore InvoiceOwl Website and mobile app to know how it works. Trying your hands on before investing in is must.

CTA arrow
Frequently Asked Questions
  1. What is a debit note?

    A debit note, often referred to as a debit memo or memorandum, is a commercial seller’s, buyer’s, or financial institution’s notification of a debit placed on a recipient’s account in the sender’s books.
  2. What are the types of debit memos?

    There are various types of debit memos:

    • Debit memos on bank account statements
    • Debit memos as internal offsets
    • Debit memos in incremental adjustments

  3. How do you enter a debit memo?

    To make a memo for an item: 

    • Click the Purchases Command Center, and select Enter Purchase. 
    • Then, type the name of the vendor.
    • Put a negative number into the Bill Number field. 
    • Select the relevant item. 
    • Keep a record of the debit memo.

Conclusion

Easy, right? Debit memos are necessary for a transparent banking system and help you know what you are charged for. So, from now on, the next time a debit memo comes your way, you will find it familiar.

Author Bio
Jeel Patel
Jeel Patel
Founder

Jeel Patel is the founder of InvoiceOwl, a top-rated estimating and invoicing software that simplifies the invoicing and estimating processes for contractor businesses. Jeel holds a degree in Business Administration and Management from the University of Toronto, which has provided him with a strong foundation in business principles and practices. With understanding of the challenges faced by contractors, he conducted extensive research and developed a tool to streamline the invoicing and estimating processes for contractors. Read More

United States

Ashburn

US