Memo entry definition

what is a memorandum in accounting

In simple words, the buyer does not want to pay an invoiced amount. A memorandum in accounting refers to a document with a short message to be entered in the general journal and the general ledger account. The entry of a memorandum refers to entering the memorandum’s message in a general ledger.

In most cases, this document will differ based on the type of transaction. However, they can still reverse the impact through other journal entries. Nonetheless, the transaction will require a supporting document. Memorandum accounts are are not part of the normal accounts of an entity.


Usually, it also includes a source document sent to the customer. Companies adjust the balance in the customer’s account through a debit memo. When companies overbill a customer, they use this memo to reduce it.

A memorandum in accounting is a document that includes a short message. Usually, companies use debit or credit memorandums which adjust customer balances. However, they may also create general memos, which serve as an explanation for transactions. In that case, it notifies a customer of an increase in their checking account balance. However, it decreases the invoice amount instead of increasing it.

Usually, the first two are more common and involve an amount. However, the general memorandum is also crucial in the accounting process. An accounting impact of debit note is that the customer decreases/debits accounts payable and credits/increase purchase returns and allowance, which is contra account for the purchases. Further, it’s important to note that the memorandum might be internal or external as it may be issued by some department of the Company or external stakeholders like suppliers, customers, etc.

For example, a memorandum account might be used to record an entity’s number of shares outstanding. The purpose of a memorandum in accounting is to ensure the completeness of accounting records and initiate some requests for the performance of the activity. So, the supplier can send a memo to the buyer highlighting the fact that they have an overdue balance with them. Hence, there can be multiple uses of memorandum in business and accounting.

Debit Memo Meaning

The primary objective of this document is to provide clarity about the financial transaction. Sometimes, it can also serve as a reminder to adjust the accounts. This term may also refer to a memorandum entry in accounting.

  • This procedural formality is implemented to bring an element of reliability to the users of financial statements.
  • Hence, there can be multiple uses of memorandum in business and accounting.
  • However, there is a need to realize that memorandums should still be maintained since they might be used during the company’s audit process.

However, it consists of a short message that becomes a part of the general journal and general ledger. A debit memorandum is a source document used to inform customers about a decrease in their balance. In accounting, it refers to an entry that serves as a notice to customers about their owed amount.

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This is because it might help the users of financial statements understand the financial statement in a better manner. For example, if there is a one-off transaction that might come off as unusual, memorandums can be used in order to communicate this to the users of the financial statements, in order to mitigate the chance of confusion, whatsoever. When entering an item into the financial systems, companies must have a supporting document.

what is a memorandum in accounting

It also applies to sales returns where customers return goods. Therefore, the company will issue a credit memorandum for $200 to the customer. As mentioned earlier, memorandums are mostly un-official documents that do not need to be necessarily published in the year-end financial statements. However, there is a need to realize that memorandums should still be maintained since they might be used during the company’s audit process.

Definition of Memorandum Entry

The message in the memorandum is entered in the ledger for tracking purposes of the updates made in the accounting record. Cindy works for Fluffy Stuffs Inc., a toy company specializing in the manufacture of stuffed animals. The company has recently sold a large shipment of stuffed animals to Toys N’ More.

what is a memorandum in accounting

For example, a company sends a $200 invoice for $300 worth of goods to a customer. However, if details of the memorandum are material and can impact the user of financial statements, the Company needs to disclose the details in the notes to the accounts. The facts reported in the memorandum are noted in the ledger that helps an accountant track the updates and explain the reason for the updates in the accounting record. Memorandum accounts are information accounts that have no accounting function or that serve as off balance-sheet accounts. For example, a memorandum account might be used to record the Number of Shares Outstanding.

There may/may not be debit/credit to be entered in the accounting system, yet the detail of the memorandum is entered to ensure completeness of the accounting record. The most common reasons the seller issues a credit memorandum include a dispute with the buyer, a return of goods from the buyer (before making payment), and marketing allowances offered by the seller (after an invoice is issued). It must be noted that the memorandum serves two main purposes, as far as companies are concerned. Firstly, they serve the purpose of ensuring that companies have internal records kept and maintained. In the same manner, it can be seen that it also serves the purpose of acting as a communicative tool between the organization, and third-party. From the perspective of internal control, memorandums tend to be extremely resourceful because they act as reminders of issues that need to be fixed because of the closing of the month-end (or year-end).

Cindy billed the company for the stuffed animals sold, but worked off of an old pricing sheet to create the invoice. This is normally not a large problem except that the market price for stuffing has increased dramatically. Therefore, Cindy has created a debit memo to inform Toys N’ More of the increase in price due to current market conditions. Memorandum is defined as a document, or a note, that goes alongside financial statements or general ledger entries.

This purely depends on the transactions, and the existing need to have memorandums in the first place. Either way, this is something that is quite subjective and is primarily contingent on the preexisting need to have memorandums in the first place. Also, having, or not having a memorandum is also not a reflection on the company and its operations. The memo is a basic document in accounting that does not need to be published in the financial statement.

Memorandums are created in order to combat this particular issue. A seller issues a credit memorandum to the buyer to reduce the balance buyer has to pay. In simple words, the buyer does not pay an agreed amount that was fixed at the time of invoicing. As the name suggests, it’s a general memorandum and does not contain debit or credit. These memoranda are created to remind something within an organization and documented to ensure completeness of the accounting record.