What is a credit memo versus a debit memo?

A credit memo (credit memorandum) is a document issued by a seller to reduce the amount owed by a buyer, often due to returns, discounts, or billing errors. Conversely, a debit memo (debit memorandum) is issued to increase the amount owed, typically for additional charges or adjustments to an invoice. Essentially, credit memos decrease liabilities, while debit memos increase them. Both are important for maintaining accurate financial records and facilitating adjustments in accounting.