Question

A credit memorandum is prepared when?

A. An employee does a good job
B. Goods are sold on credit
C. Goods that were sold on credit and returned
D. Accounts receivable will be credited

Answer 1

A credit memorandum is prepared when goods that were sold on credit are returned (option C).

Step-by-step explanation:

When a customer purchases goods on credit, it means that they receive the products immediately but will pay for them at a later date. However, sometimes customers may decide to return these goods for various reasons, such as being dissatisfied or receiving a wrong item.

In such cases, the seller prepares a credit memorandum to document the return and to credit the customer's accounts receivable (amount owed) for the returned goods.