Question

The credit memo reduces sales which reduces equity and reduces the amount the customer owes, mainly accounts receivable, an asset.

True
False?

Answer 1

A credit memo results in a reduction in sales and subsequently decreases both equity and the customer's accounts receivable balance, accurately reflecting in the financial statements.

Step-by-step explanation:

The statement "The credit memo reduces sales which reduces equity and reduces the amount the customer owes, mainly accounts receivable, an asset" is True. A credit memo is issued by a seller to a buyer, reducing the amount that the buyer owes. This decrease in accounts receivable, an asset, is mirrored by a reduction in sales revenue, which subsequently decreases owner's equity or shareholders' equity, as sales are part of the income that contributes to equity.