What does a credit memo do in QuickBooks?

A credit memo in QuickBooks serves to reverse a sale, adjusting the financial records to reflect that a customer has been granted a credit for a previously completed transaction. This means that it can reduce the amount the customer owes, especially in situations where they return an item or where a billing error has occurred. When a credit memo is issued, it effectively negates part or all of the original sale amount, recording this adjustment in the system and updating the customer's balance accordingly.

This detailed adjustment mechanism ensures accurate financial reporting and helps maintain a clear account of customer transactions. By using a credit memo, businesses can track the reasons for credits issued and streamline their accounting processes, ensuring customers are billed accurately for products or services provided.

The other options do not capture the primary function of a credit memo; while it may initiate a refund process or have implications on a customer's balance, its core purpose remains focused on reversing sales. Additionally, it is not involved in creating estimates, which is a separate aspect of sales and service tracking within QuickBooks.