When does a vendor credit apply toward a balance?

• A. After the next bill is paid
• B. Immediately
• C. Only at year-end
• D. When the vendor approves

Answer: (B)

A vendor credit immediately reduces what you owe to that vendor. When you record the credit memo, it creates a reduction in accounts payable with that vendor, so your balance drops right away. You can apply the credit to a specific bill to lower that bill’s amount, or leave it as a credit to use against future purchases. It doesn’t wait for the next payment, year-end, or require the vendor’s approval. For example, if you have a $500 bill and receive a $100 vendor credit, your outstanding balance becomes $400 as soon as the credit is entered.