Understanding debit and credit notes

Generally, a debit note is issued when there is a return outward/ purchase return while in the case of return inward/ sales return credit note is issued. In a transaction, when the buyer returns the goods to the seller, the buyer will issue a debit note and the reversed party will issue a credit note in exchange for the debit note. Hence, they are the two prospects of the same transaction.

Table of content:

  • What are debit notes and credit notes?
  • The top comparison between debit and credit
  • How much time for credit note and debit note should be retained?
  • Example of debit note and credit note?
  • Key difference between the debit note and credit note?
  • Bottom line.

Debit Notes

A debit note is known as a debit demo, and it is a document that is issued from a buyer to a seller pointing a request to return funds as a result of incorrect or damaged services, goods, or cancelation of purchase.

A debit note is also issued to the seller or the supplier of the goods by the buyer or the customer for informing about returning the goods received by the latter due to the defect and disparity present in the same.

The debit note is also updated with the reason behind the return of goods.

Credit Notes

The credit note is also known as a credit demo. It is a document that the seller issues to indicate a complete or incomplete funds return.

It may get up in the event of an incorrect or damaged supply of goods, cancelation of an invoice error, or a purchase. However, it is normally raised in response to a debit note from a customer. The customer or purchaser can also use this document against a future order.

The credit note is a type of sales return that is issued to the buyer or the customers of the goods by the seller or the supplier of the same, and it informs that the purchase returns are accepted. 

The Top Comparison between Debit Note

and Credit Note

Basis of ComparisonCredit NoteDebit Note
Issued byThe credit note is issued by the seller to the buyer showing goods return are accepted. While the debit note is issued by the buyer or the customer of the goods.
Possible effectCredit notes reduce accounts receivables.Debit notes reduce accounts payables.
Used of color inkThe ink color used in a credit note is red.The ink color used in a debit note is blue.
Reflectcredit reflects only a negative amount.Debit reflects only a positive amount.
Updated book
The sale return book is updatedPurchase return book is updated
Exchanged againstCredit notes are also issued in exchange for debit notes.Debit notes are issued in exchange for credit notes.
Buyer to sellerThe Credit notes are issued when the seller or the supplier undercharges or has delivered additional goods.Debit notes are issued when a customer or buyer returns the goods to the supplier or the seller.
Seller to buyerCredit notes are issued when the seller or supplier acknowledges the debit note.While debit notes are issued when the buyer or customer returns/ cancels goods purchased.
Another formAnother form of the credit note is the sales return of goods.Another form of debit note is the purchase return of goods.
Result Sale accounts are reducedPurchase account is reduced
Issued toThe credit note is issued to the customer or the buyer of the goods.The debit note is issued to the supplier or the seller of the goods.

How much time for Credit Note and Debit

Note Should be Retained?

The credit and debit note records have to be retained until the expiry date of seventy-two months and from the due date of furnishing of annual return for the year regarding such records and accounts.

Such documents and accounts are maintained manually however they should be kept at every business or related place mentioned in the registration certificate. They shall be available at the related area of the business or a company where such accounts and documents are digitally maintained.

Example of Debit Note

Company C is the purchaser, and Company D is the seller or supplier. The sequence of events below will lead to issuing a debit note.

  1. Company C purchases goods worth Rs. 1000 from Company D
  2. Company C receives the goods and the final invoice but finds some goods to be damaged.
  3. Company C communicates to company D about the damaged goods and its intention of returning them.
  4. Company C raises a debit note against company D, containing information about the original purchase and the value of the damaged goods.
  5. On receipt of the debit note, after some due diligence, Company D issues an appropriate credit note.

Example of a Credit Note 

Company C is the purchaser, and Company D is the supplier. Company C places Rs.10000 worth of orders from Company D. After sampling the delivered goods; company C informs company D about the low quality of goods detected in the sample. While company D verifies the sampled items to confirm the issues and faults a credit note opposition of the original invoice for the amount mutually decided on.

In real cases, the original invoice can be canceled in opposition to the credit note issued, and also an invoice corrected can be raised.

This credit note also may be used by Company C for further purchases from company D in the future, and the refund of the amount may also be agreed.

Key Difference Between Debit Note and

Credit Note

  • A  memo sent by one party to inform the other party but a debit has 

being made to the seller’s account in the buyer’s books is known as Debit Note.

 While a  commercial document that is sent by one party to inform the other party that a credit has been made to the buyer’s account in the seller’s books is known as Credit Note

  • Debit Note represents a positive amount while Credit Note prepares a negative amount.
  • Debit Note reduces payables.While On the other hand, Credit Note reduces  receivables.

Bottom line

This article gives a detailed difference between debit and credit notes. Here we also discussed the debit note and credit note key differences, examples, and also comparison table.

Related Post