This exchange is probably the most famous in Zen lore. Bodhidharma met the emperor of the Liang Dynasty, a devout Buddhist renowned for his piety and charity, who was much given to endowing monasteries and orphanages. Wu said: "I have endowed temples and authorized ordinations - what is my merit?" Bodhidharma's answer was radical: "No merit at all."
Wu had been doing good for the sake of accumulating merit. Bodhidharma cut through Wu's ideas about merit to the core of his teaching, that your practice isn't apart from you: when your mind is pure, you live in a pure universe; when you're caught up in ideas of gaining and losing, you live in a world of delusion.
Source: Via Lotus in the Mud blog: http://lotusinthemud.typepad.com/sujatin/2006/09/merit_and_motiv.html
Contributed by: Ryan