Debit memo and Credit memo

[Former Member]

Dear Expert,

I always confused on Debit memo and Credit memo...especially the business scenario behind and how it is reflecting in SAP system.

Let's take this example:

e.g the Price in the main Invoice is lesser than the actual price, and the difference needs to be recovered from the customer.

My analysis:

"The invoice is lesser than the actual price", Means Product should cost 100 USD, but we billed customer only in 80 USD, there are 20 USD difference. Customer should pay us the rest 20 USD. So our Account receiivable should be increased. So we need create Debit memo to customer and ask them to pay the money. Customer received the Debit memo, they will create credit memo and send it to us said they will pay the money.

Am i understanding correct??? Please kindly share in case you have better simple example. Thank you very much.

[jpfriends079 · Accepted solution]

Your understanding on the subject is absolutely correct.

Let me share an another example with you for debit memo.

These manufacturer of nuts and bolts. Previously they have 100 nuts in one pack, but then they changed it to 120. But the order which was already made for 10 pkts delivered 1200 nuts instead of 1000. So they require to raises Debit memo.

But, these Debit memo generally avoid, b'coz people take at most care in creating a invoice. And people do like to pay when they are receiving end.

Where as, Credit memo can be result of return or complaint of defect or less quantities delivered.

Well, their behavior is control by SD document categ at billing doc type (Tcode VOFA)

- P is for Debit Memo (L2)

- O is for Credit Memo (G2)

These SD document category classify for the different types of documents that you can process in the sales and distribution system (for example: quotations, sales orders, deliveries, and invoices). So, these determines how the system stores and keeps track of document data. It enables the system to provide you with status information about delivery processing, billing, and documents that are used for reference (for example, inquiries and quotations).

So, if we summaries it,

Credit memo - Created to reduce the amount of an existing vendor payable, or customer receivable.

Debit memo - Used to recover costs from another department or faculty. May also be used to correct an incorrectly posted entry.

Hope this suffice your requirement.

Thanks & Regards

JP

[Lakshmipathi]

In simple terminology, if you have to give money to customer, it is called credit note. On the other hand, if you have to receive money, then it is debit note.

thanks

G. Lakshmipathi

[Former Member]

Hi

Your understanding of the Debit and Credit memos are correct.

However, based on the scenario you have given, you can simply go with invoice correction since there is a Price difference.

Regards

Madhu

[jignesh_mehta3]

Yes. Your Understanding is Correct.

To explain from Accounting Terms:

Invoice (Billing) creates a Deit Entry on Customer. Means Customer Has to pay us some money.

Similarly, Debit Memo Creates Debit Entry on Customer, which means we have to receive some money from Customer.

Credit Memo creates Credit Entry on Customer which means We have to Pay some money to Customer.

Example:

1. We send Defective Goods to Customer & he returns it back. In this case we create Credit Memo & issue the same ot Customer.

2. Rebates: You need to credit the Customer for Rebates. In this case you issue a Credit Memo to Customer.

3. Debit Memo: By mistake You charge less to your Customer. So you issue him a Debit Memo for balance amount.

Hope this clarifies.

Thanks,

Jignesh Mehta