Credit memos in the real world

Hello, trying to understand EXACTLY how credit memos work. Say I have a vendor invoice I need to pay but because of issues my vendor has to give me a credit memo to reduce the amount I owe them. So now, how
does this work? Does my vendor send me a credit memo document (piece of paper) with a number on it ? I have to enter that on my side of the transaction but a "credit" on the payables side increases my liability so do I then create a debit memo? If I have to create a credit memo in my system, now I have two numbers - my vendors and mine so what number do I use when I apply the credit memo to my payable. I'm very confused as to how this works. I need step by step detailed explanation to understand how this works.
Thanks Gi
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The credit memo is his. He credits your account to write it down to some agreed amount. It's how he reconciles the sales amount to the cash received and bring the balance owed by you to $0. That "credit" reduces the receivable on his books, which is a debit balance. Hence, credit memo.
If you had booked the payable (a credit balance) at the higher amount, you would have to reduce that amount owed with a debit memo or by whatever your system has set up for that purpose.
If you haven't booked the payable, just show your expense or cost or inventory at the actual amount paid.
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wrote:

I'm really looking for the mechanics of this. That is the physical exchange of documents or tracking numbers. Tell me if this is correct. My vendor issues a Credit Memo against my AP account which for my vendor normally has a debit balance since my AP account to them is an asset. So a Credit Memo against my AP account would reduce the amount I owe them. Now what? Do they send me a physical credit memo document? For example, a payment is something physical - a check. There needs to be something physical to reference for future reconciliation or disputes even if it's just a number. Now, once my vendor issues a credit memo what document do I enter on my side? I'm more concerned with the logistics and mechanics of how this exchange works. Thanks
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wrote:

I'm really looking for the mechanics of this. That is the physical exchange of documents or tracking numbers. Tell me if this is correct. My vendor issues a Credit Memo against my AP account which for my vendor normally has a debit balance since my AP account to them is an asset. So a Credit Memo against my AP account would reduce the amount I owe them. Now what? Do they send me a physical credit memo document?
They should. That would be your record of the price reduction given by them. Without some document in your hands, how would you prove why you sent them a smaller amount? What would keep them from trying to collect the rest of the bill from you in the future?
For example, a payment is something physical - a check. There needs to be something physical to reference for future reconciliation or disputes even if it's just a number. Now, once my vendor issues a credit memo what document do I enter on my side? I'm more concerned with the logistics and mechanics of how this exchange works. Thanks
The mechanics of how you enter their credit memo would be in the FAQ section of your AP software.
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