What is a credit memo in accounts receivable?

A credit memo in accounts receivable is specifically issued to reduce the amount owed by a customer. This often happens in scenarios like product returns or billing mistakes, where the company needs to adjust the customer's balance accordingly. The credit memo serves as a formal acknowledgment of this adjustment in the accounts receivable ledger.

For instance, if a customer returns goods because they were defective or not as described, the business would issue a credit memo to decrease the customer's outstanding balance. This document is crucial for maintaining accurate financial records and ensuring that both the customer and the business are in agreement about the amounts owed.

The option regarding a statement summarizing customer purchases describes a different document, which serves more for informational purposes rather than adjustments to account balances. Likewise, increasing the amount owed or showing total sales amounts pertains to other types of documents that do not fulfill the role of a credit memo.