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What Is a Debit Memorandum?

Esther Ejim
Esther Ejim

A debit memorandum is an accounting tool that is utilized for several purposes. It serves as a vehicle for financial institutions, such as banks, to inform their customers of changes to their account balances due to an internally generated transaction that may not be included in the more common types charges that accrue to the accounts of such customers. The facility is also utilized by companies as a means of correcting an imbalance in the charges previously issued for a transaction.

Sometimes companies make mistakes by charging their customers an amount that may be lower than the actual price for a service or product. When this happens, the company might decide to address such a mistake through the use of a debit memorandum. In this case, the debit memorandum will only include the difference between the previously charged amount and the actual amount, which will be issued to the customer as a bill. The company issuing such a debit memorandum may have also failed to take some factors that affect the price of the commodity into consideration when it issued the original invoice, making it necessary for it to recalculate and attribute the actual amount to the customer for the remittance of payment.

Man climbing a rope
Man climbing a rope

Another application for a debit memorandum is a charge that is attributed to the account of an account holder by a bank, other than the usual charges. For instance, a bank might debit a stated sum from an account holder’s balance as a punitive fine for issuing bounced checks. In such an instance, the bank will issue a debit memorandum to the affected customer, informing him or her of the deductions, the nature of the deduction, and the current balance in the depositor’s account. Sometimes the bank may issue a debit memorandum when it debits some money from the customer's account as a service fee for maintaining the account.

At other times, the reason for the generation of this tool could be due to some kind of error on the part of the accountants when reconciling the company accounts. In this type of case the accountants will make up for the error through the use of a debit memorandum. Usually, such mistakes in the reconciliation will overstate the total balance in the account, or it may be due to some mistakes in charging the customers for services and goods that have increased the total balance.

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