 Hello in this lecture we will define credit memorandum according to fundamental accounting principles while 22nd edition the definition of credit memorandum is notification that the issuer sender has credited the recipient's account in the sender's record. So note what we have here is a credit memorandum with the term credit within it. What that means to the customer is that the customer owes us money and the company then is reducing the amount that is owed for whatever reason the credit in the term credit memorandum really still only means the amount on the right hand side of the ledger that ledger being the accounts receivable ledger related to a particular customer and if we credit it that's how we're reducing that ledger amount. So let's take a look at an example if we had a customer that was to purchase inventory and gave us an IOU the transaction for the purchase would be that we would have accounts receivable go up sales go up and the inventory side inventory would go down and costs of good souls would go up. If at a later time the customer then returned the inventory for whatever reason we may then issue a credit memo. What that means to the customer is yeah customer you no longer owe us that 8,450 so it's reducing the balance that is owed but be careful with the term credit memorandum because it starts to confuse the idea of a credit. To us a credit just means that the receivable for this particular customer has now gone down. So the journal entry would be the accounts receivable decreasing that's the credit so the accounts receivable is a debit amount related to this customer and we're making it go down because the merchandise was returned that's why we are crediting that customer's account in accounts receivable and that means that sales returns is going to go up which is the income statement account which is going to bring down net income and we have the other side of the transaction inventory is going back up because we're increasing the inventory and the cost of goods sold is going down. Key point here is that this accounts receivable is the account that's being credited which lends itself to the name credit memorandum which is basically reducing the amount that is due from the customer.