Which account is credited when a credit memo is issued?

When a credit memo is issued in accounting, it is used to reduce the amount that a customer owes for a sale. In this process, the appropriate account to credit is typically the Sales Income account. This is because the credit memo reflects a decrease in revenue associated with the sale that is being adjusted or reversed. Crediting the Sales Income account adjusts the revenue figure downwards to accurately reflect the reduction in sales due to the credit memo.

The other accounts listed would not normally be credited in this context. For instance, Accounts Receivable would be debited to reduce the amount owed by the customer, while Inventory Asset might be involved if returning goods, but that is not typical for a straightforward credit memo. Undeposited Funds also does not typically relate directly to the issuance of a credit memo, as this account deals with cash or check transactions before they are deposited in the bank. Thus, crediting Sales Income aligns with the accounting principle of accurately stating revenue based on sales activity, including adjustments for any returns or allowances.