Correct; the credit memorandum should reduce the value of the transaction between buyer and seller as it relates to an earlier purchase (invoice). If the credit relates to the return of merchandise, there should be an accompanying increase of inventory (this is assuming a tangible product rather than a service). Now, we do have a couple of issues to inquire about... as the credit reduction is directly reducing accounts receivable, are there any unusual activities related to that account - for example, how do customers generally remit payment to their accounts receivable balances? If cash, are the credits impacting only those type of customer accounts?

For purposes of internal control, how might we reduce or prevent potential fraud when it comes to credit memorandum? Are there specific documents, or approvals that would be recommended in order to strengthen this process?