How does a debit memo function?

A debit memo is primarily used to adjust the amount that a customer owes a business, specifically when a reduction is needed. This could occur for several reasons, such as a return of goods, a pricing error, or a discount applied after the original invoice was issued. By issuing a debit memo, the company effectively lowers the total balance due from the customer, reflecting these adjustments in their accounts receivable records.

In this context, when a debit memo is issued, it directly reduces the amount owed by the customer. This adjustment is crucial for maintaining accurate financial records, as it ensures that both the company’s and the customer’s accounts reflect the correct outstanding balance after considering any changes.

The other options discuss scenarios that do not accurately describe the function of a debit memo. For example, it does not increase what the customer owes, nor does it serve as an application for credit or a payment receipt; those roles are fulfilled by different accounting instruments or documents.