Credit Memos in AP and AR

[cbalakri]

Hi All,

In AP we have Debit Memo and Credit Memo to decrease the supplier liability. In AR we have credit memo to decrease and debit memo to increase our receivable. Is there any specific reason for this design.

Regards,
Bala.

[cbalakri]

To make my question clear, why is the design not in sync between modules, any reasons. Thanks.

[Willynelly1]

Hi,

DEBIT MEMO - AP
--------------------
Negative amount invoice which is created and sent to a supplier to notify the Supplier of a credit you are recording. To correct over billing errors, we create a Debit Memo by doing a Return To Supplier transaction for the extra quantity that got invoiced. Automatic Debit Memo will be created only when billed quantity of Purchase Order is greater than or equal to Returned Quantity. Return To Supplier reduces the PO billed quantity by the returned quantity but in any case PO billed quantity will never go below zero.

CREDIT MEMO -AP
----------------------
You receive a credit memo from a supplier with whom you are no longer doing business. A similar situation may occur if you record a debit memo for a supplier with whom you are no longer doing business.
The supplier sends you a refund and you would like to record the refund in Payables and remove the credit/debit memo from the Invoice Aging reports.
So, there is no diff. between Credit Memo/Debit Memo in AP, both are same meaning.

DEBIT MEMO - AR: Debit Customer
CREDIT MEMO -AR : Crediting Customer -Discount/Write offs, transfers etc..

To make your question clear-why is the design not in sync between modules - Both Modules are handling diff parties, supplier/customer.


Regards,

William.

[cbalakri]

Hi William,
Thanks for your reply. Can you please post or point me to some examples, if possible, on all 4 ie both memos in both ap and ar.
Regards,
Bala.

[kkmundhra]

Hi Bala

Accounts Payable:

Both DM & CM reduces the supplier balance in AP.

Ex- PO Price ? 100
Inv Price ? 110 (By mistake) (Over billing)

If supplier comes to know of the mistake then he will send a Credit memo to us indicating that our account has been credited in his books to the tune of 10. Credit memo is raised by supplier.

If we come to know of the mistake we will raise a debit memo & send it to the supplier indicating that his account has been debited by 10. Debit memo is raised by us.

In both the cases supplier liability is decreasing.

Accounts Receivable:

DM-Increases the customer balances.
Ex- Interest on late payment of bills.

CM- Decreases the customer balances.
Ex- Over billing

In receivables both CM & DM are raised by us.

Hope it is clear now.

Thanks

Karan

[admin]

In order to understand the Credit and Debit you should download my tutorial which is very simple to understand,

Accounting Concepts and Entries in Oracle
topic.asp?TOPIC_ID=2164

now let us discuss with simple example.

<b>Accounts Receivable</b>
For example cbalakri has a book store. You sold a book to Admin and the price was $100 but you charged $150. The next day Admin comes to your store and requests you to pay him $50. Just imagine that Admin is your customer and you should always receive cash from him but this time you are going to pay him.

<b>Accounts Payable</b>
Now you have a supplier **** from whom you buy book for your book store. Keep in mind that to supplier you always pay for the goods you purchase. The **** sent you an invoice of $250 instead of $200 and you made payment. The next day when you checked you noticed that oh I paid $50 extra and you requested **** to pay you back the amount. Imagine supplier is for payments but here you are going to receive from him.

I hope now it will be clear for you to understand the difference in two modules. Just think in the terms of Customers and Suppliers.

Let us know if still any confusion.

Thanks

[cbalakri]

Thanks to all for your time, replies and examples. Last question to conclude, taking Karan's example: "we will raise debit memo for the interest receivable". So, If we have to pay interest to our supplier (assuming the payment date has passed and we are paying interest on the actual invoice amount). Will we raise another AP invoice or is there a way or any other document in AP to increase supplier liability with the same invoice reference.
Thanks again - Bala.

[kkmundhra]

Hi Bala

The supplier has to send interest invoice with reference to the original invoice. Or else we can enable interest in payables so that payables automatically calculates the interest on payment. However payables does not calculate the interest for the invoices which are due over 365 days.

Thanks
Karan

[cbalakri]

Thanks Karan. - Bala

[ashek1]

To Summarize

In AR
Debit Memo increases customer balance
Credit Memo decreases customer balance

In AP there are 3 cases
1) We generate a Debit memo to supplier, then supplier balance decreases
2) We make an entry of Credit Memo sent to us by supplier, then again supplier balance decreases
3) We receive a debit memo from supplier, we cant enter it as debit memo due to limitations therefore we have to enter details in a new invoice