Question

To refund money to a customer, you prepare a _______ to decrease an amount owed. For an invoice, you prepare a _______.

a) Credit Memo; Refund
b) Sales Receipt; Payment
c) Refund Receipt; Credit Memo
d) Payment; Sales Receipt

Answer 1

To adjust a customer's account for a refund, a Credit Memo is prepared, and to record a payment for an invoice, a Refund is noted. This is similar in concept to receiving a tax refund when you've overpaid your taxes to the government.

Step-by-step explanation:

To refund money to a customer, in terms of accounting and business transactions, you prepare a Credit Memo to decrease an amount owed. On the other hand, when you are recording the receipt of payment for an invoice that a customer has paid, you prepare a Refund. Therefore, the correct answer to the question is a) Credit Memo; Refund.

This process is somewhat analogous to obtaining a tax refund. If a person has paid more in taxes throughout the year than they owe, before the yearly deadline (usually April 15th), they are eligible for a tax refund from the government. The preparation of a Credit Memo in business functions similarly, where it acknowledges that a customer has been overcharged or has returned goods and is owed money back, effectively reducing the customer's outstanding balance.