What are credit memos

what are credit memos

Answer is. B) decrease the bank’s liabilities.

A bank credit memo is an item on a company’s bank statement that increases a company’s checking account balance. A bank debit memo is an item on the bank statement that reduces the company’s checking account balance. Since these items are already on the bank statement, the only adjustment that could be required is in the company’s accounting records.

In other words;

Credit memo like "interest revenue" will increase the customer bank account which is in the same time a liability to the bank. Bank will simply record Credit memos as Debit to Cash and also Credit to the Company account which is a Liability to the bank.

This means that Credit memo like interest revenue will increase both cash in

the bank and also increase the bank liabilities.

Now; Debit memo like service charges are Like Revenue to the bank Right so we Credit Service Charge Revenue but The bank doesn't go and collect cash from its depositors, Right? They just reduce their Depositors Account balances which means they decrease their Liabilities by Debiting the customer account.

Notice Increase Customer's Liabilities can never be right because Liability means that there are obligation to pay in the future but in reality when the customer gets the bank statement and find about the service charges. He will just make the following entry:

Dr. Bank Charge Expense $xxx

Cr. Cash in bank $xxxx

There is no liability here ^_^

Hope I helped you

Mostafa · 2 years ago

Source: answers.yahoo.com

Category: Credit

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