Alternate names: Debit memo, debit note
A debit memo is common in the banking industry in several situations. For example, a bank may issue a debit memo when it assesses fees. The fee will be debited (or deducted) from the customer’s account and recorded as a debit memorandum to indicate that it is an adjustment rather than a transaction. A debit memo may also be used when adjusting an incorrect account balance. Common debit memos include returned check fees, insufficient funds fees, interest fees, fees for printing checks, bank equipment rental fees, and adjustments to incorrect deposits.
How a Debit Memorandum Works
In banking, fees are automatically taken out of an account and the debit memorandum is noted on its bank statement. For example, if your business has $10,000 in its checking account and the bank charges a service fee of $35, the account will be reduced by $35 to $9,965 with that reduction noted in a debit memo. You might see similar debit memos for, say, fees for bounced or printed checks. Debit memorandums are also used in double-entry accounting to indicate an adjustment that increases a customer’s amount due. For example, if a customer ordered and paid for $1,000 in lumber in April, and the cost of lumber when it was delivered in June increased to $1,150, a debit memo could be issued for the $150 extra cost of lumber. The supplier would add a $150 debit memo to their accounts receivable while the customer would add the extra $150 to their accounts payable.
Types of Debit Memorandums
Debit Memos on Bank Statements
Bank fees are one reason a bank may use a debit memo to decrease an account balance. A bank will take money out of an account for insufficient funds, overdraft fees, bank service fees, and check printing fees, among other reasons.
Debit Memos as Internal Offsets
When a customer pays too much, the extra can be offset with a debit memo. This allows the accounting department to clear it out by sending the memo back to the customer. If the extra amount in a customer’s account is the result of an accounting error that results in a residual balance, it can also be rectified with a debit memo.
Debit Memos in Incremental Billings
When an original invoice is sent with an amount that was too low, a debit memo may be sent with the incremental correction. This method is not commonly used because most companies reissue an invoice with the corrected amount instead.
Debit Memorandum vs. Credit Memorandum
A debit memorandum and a credit memorandum both notify customers about a change in their account status. A debit memo informs customers (or buyers) about why their account balance declined or why they owe more. Credit memos are the opposite: They note changes that increase an account balance.
