Assuming a seller has not yet collected cash for goods sold, a credit memorandum is prepared to inform the buyer of the seller's credit to its Accounts Payable account arising from a sales return or allowance.

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A credit memorandum is issued by the seller to inform the buyer of a credit to the buyer's Accounts Receivable account, not Accounts Payable, due to a sales return or allowance.

Assuming a Seller Has Not Yet Collected Cash for Goods