Final answer:
A credit memo in bookkeeping reflects a decrease in accounts receivable, indicating the customer owes less money, and generally results in reduced sales revenue and potentially adjusted inventory levels.
Step-by-step explanation:
A credit memo effects the bookkeeping of a business by reflecting a credit to an account, usually the accounts receivable. It indicates that the amount stated on the memo has been credited to the customer’s account, reducing the balance owed by the customer.
This could occur due to a return of goods, an overpayment, or a sales allowance for damaged or disputed goods. In the business’s accounting records, the credit memo will decrease the sales revenue and accounts receivable. It might also affect inventory levels if the memo is due to returned goods.
The general accounting equation of assets = liabilities + equity will be maintained but altered; assets will decrease because accounts receivable have been reduced, but equity might also decrease simultaneously because of the decrease in net income due to reduced sales revenue.