What is a 'Debit Memorandum'
1. A document given to an account holder which states that the account balance has been decreased as a result of factors other than a cash withdrawal or a written check being cashed in. Debit memorandums can arise as a result of bank service charges or bounced check fees. A debit memorandum is typically sent out to bank customers along with their monthly bank statements.
Also known as a "debit memo", for short.
2. The adjustment procedure that occurs following a business's valid complaint against another business. For example, if Company A sends defective merchandise to Company B, a debit memorandum would be issued in order to adjust the accounting statements in terms of debits and credits.
BREAKING DOWN 'Debit Memorandum'
It is usually preferable to avoid debit memorandums from either the individual or business perspective. Individuals typically incur undesirable fees for additional bank service charges or for having a check bounce. On the other hand, there are numerous implicit costs for a business debit memorandum such as possible loss of reputation and human labor to make the necessary adjustments.