Glossary / Credit memo · Also called Credit note, Customer credit

How it works

A credit memo is the clean way to undo part of a sale. Deleting or editing an old invoice after it was sent hides what happened. A credit memo leaves the original invoice in place and records the correction as its own dated document.

Once issued, the credit can be used three ways. It can be applied to an invoice the customer has not paid, kept on the account for a future invoice, or paid back as a refund by cheque, card or bank transfer.

In Canada the same document is often called a credit note. Any sales tax on the original sale is reduced in proportion.

Worked example: Returned goods on an unpaid invoice

A retailer invoices a customer $565.00: $500.00 of goods plus $65.00 of tax at 13%. The customer returns one item worth $100.00.

The retailer issues a credit memo for $113.00: $100.00 of goods and $13.00 of tax. Applied to the invoice, the customer now owes $452.00. Income falls by $100.00 and tax payable by $13.00. The original invoice still shows $565.00, with the credit applied against it.

In the US and in Canada

In Canada

For GST/HST, a credit note that reduces the tax charged must carry certain details so both sides can adjust their returns, and the CRA's term is credit note.

In AcboBooks

In AcboBooks, a credit memo can be allocated across a customer's open invoices, or its unused amount refunded by cheque or card. Writing off a bad debt also uses a credit memo, posted to a Bad Debt expense account and applied to the invoice.

Related terms

Related on this site

Updated October 25, 2026. General information, not tax, legal or accounting advice. Rules and rates change; check with the IRS, the CRA, your state or province, or your accountant.

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Credit memo