Also known as a debit note, a debit memo is a type of accounting document that is used to identify an amount that is charged to a customer account. In some instances, the memo is an internal document that makes it possible to maintain a record of charges on and account that have not yet been invoiced. At other times, a debit memo serves a function similar to that of an invoice, allowing the customer to use the document as the basis for submitting a payment.
When used as an internal document, a debit memo can be used to apply charges to a customer account that have not yet been invoiced. This can include current usage that has occurred since the last billing statement. Once the process of preparing an invoice for the most recently closed period begins, all memos created since the last closing date will be used as documentation to support the line items on the new invoice. While in the past the debit memo was kept only as a paper copy, some accounting software systems today allow for the creation of an electronic memo that can be accessed and used to populate the detail on a customer invoice.
As a substitute document for an invoice, the debit memo may be used as a means of adjusting the balance due on an account when a previously incurred charge is left off that invoice for some reason. For example, if the special pricing extended to a client via a contract should expire, and the detail in the billing system is not updated, it is possible that a billing period will be billed at the older and no longer applicable rates, rather than the standard rates for the goods and services supplied. When this is the case, the company may choose to issue a debit memo and forward a copy to the client, adjusting the balance due on that invoice and asking for the remainder of the payment to be tendered within a certain period of time.
Just as a credit memo is often used to make some type of adjustment in the balance due on a customer account by removing a portion of the accumulated charges, a debit memo may be used as the mechanism for adding charges that have been determined to apply to that customer. The actual detail on the memo will vary based on company policies and how closely generally accepted accounting principles are followed, but the document is likely to include all information necessary to eventually create a line item on an invoice. In addition, the debit memo detail will be enough to trace the history of the transaction from the time the charge is incurred all the way through to the date of invoicing.
