Debit Memo and Credit Memos in Accounts Payable

Before getting into the transactions, let’s see what are Debit Memos and Credit Memos.

In Oracle Payables both of them are used to reduce the invoice amount. This reduction can be of any reason and from either side i.e. the organization using Oracle Payables (Payer) or the Supplier (Payee) it is going to pay.

There is a concept that if an invoice amount needs to be increased then a CR memo is entered and if it needs to be decreased then DR memo is entered. However this concept doesn’t apply in Oracle Payables. Here in Payables the difference between CR and DR memo is of initiation i.e. a Credit Memo is given by the supplier if it finds any discrepancy the amount invoiced and debit memo is given by the customer if they identify any discrepancy.

Debit Memo: A negative change in invoiced amount identified by customer and sent to supplier.

Credit Memo: A negative change in invoiced amount identified by supplier and sent to customer

Moving on,

There are two possible scenarios in Payables for entering a CR or DR memo

  1. The invoice is paid
  2. The invoice is not paid

In first scenario where invoice was overcharged and has been paid to the supplier; a CR/DR memo will create a Refund i.e. receiving amount in the bank.

In second scenario where the invoice is overcharged but open or not paid; a CR/DR memo will reduce the payment amount.

Here are the steps for entering the invoice for Scenario 1

  1. Create an invoice if you want to test this scenario, let’s say invoice number INV-001 with amount 15000/-
  2. Create CR/DR memo for same supplier in INV-001
  3. Give it a number say INV-001DR1 with amount -3000/-
  4. Scroll the invoice header section to the Match Action column and select “Invoice” from the drop down.
  5. Don’t give the Invoice Line or Distribution amount.
  6. Click on Corrections button.
  7. Enter invoice number to be corrected i.e. INV-001 and click Find.
  8. Click on Select and enter the amount to be corrected say -2000 or the total amount -3000.
  9. Click Correct.
  10. With this, the Invoice Line and Distributions will be copied to CR/DR memo with the respective correction in Distribution lines.
  11. Now perform the validation.
  12. Create Accounting is optional.
  13. Now pay the CR/DR memo; you can use the “Pay in Full” option or the Payment window.
  14. Select the bank account in which you are receiving the refund from supplier.
  15. Enter the check number, which is used by supplier to pay the refund amount.
  16. Save the Transaction.
  17. The accounting in this case will debit your bank account and Credit the Liability.

Accounting Entry for Refund:

CR/DR Memo

Liability           DR

Expense                CR

CR/DR Memo payment

Bank                   DR

Liability                CR

Here are the steps for entering the transaction in Scenario 2

  1. The Invoice for this scenario will also be created already.
  2. Enter the CR/DR memo with the reduction amount.
  3. Go to payment window.
  4. Select the Supplier and every other detail.
  5. Select the bank account and document number you are paying from.
  6. Click Enter/Adjust Invoice and select the Standard Invoice for which the amount should be reduced in the first line and the CD/DR memo in the next line. You will that the Total will be reduced which will your payment amount.
  7. Save the transaction.

 

Case Study:

There was a scenario wherein our users realized that we made excess payment to supplier for some service that supplier provided. Original invoice was entered in June–2015 and already paid in full using wire payment and user were trying to adjust this invoice on Oct-2017, since this invoice was paid in full AP will not let you adjust the invoice and decrease the liability where liability is already clear.

So user wanted reduce the liability, in other word as invoice is already paid in full we were requesting a refund payment from supplier.

This was achieved using entering a debit memo with negative amount and matching to original invoice and prorating adjustment over all eligible lines. Later this invoice was paid in full.

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