#debit note

A credit note is a document issued by the supplier to the recipient to reduce the value of an earlier issued tax invoice, when certain conditions arise under GST.

The typical situations when you must issue a credit note include:

The goods supplied are returned by the recipient.

Services or goods provided to the client are deficient or do not meet the specification.

The quantity of goods received by the client is less than what was on the original invoice.

A higher tax rate was applied than what was applicable.

The supplier declared a value higher than the actual value of goods or services provided.

3. The credit note thus ensures the supplier’s tax liability is reduced appropriately and that the recipient’s records reflect the correct value.

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Introduction

In business transactions, a debit note and a credit note are the two significant tools for maintaining accurate financial records. For efficient financial records of sale return and purchase return transactions, businesses use the debit note and a credit note as the official documents.   

The main difference between a debit note and a credit note lies in the origin of the two. A debit note comes from the buyer while the credit note originates from the seller. You can use accounting software like Eazybills to issue a debit note or a credit note along with other billing options.

What is a Debit Note?

A debit note is an accounting document issued by the buyer to the seller. It is the official document used to correct and adjust the financial invoice for the sale of goods and services. But it is commonly used by the seller when he needs to increase the amount of the products and charge tax on them. Eazybills help you issue debit notes in GST.

The seller used a debit note to inform the buyer about the current debt obligation in the buyer's accounts. For the seller, it increases the number of receivables in the books of the seller.  Debit notes are the commonly used accounting tool that facilitates the accuracy of the books and makes business transactions more efficient.

What is a Credit Note?

A credit note is a financial accounting document in business transactions issued by the seller to the buyer. It indicates that the buyer owes less than the amount stated on the original invoice. The vendor used a credit note to assure the buyer that he (the buyer) is entitled to the credit because of the return of the goods, cancellation of an order, invoicing errors, product quality issues or price changes.

A credit note also ensures that the purchase return is accepted by the seller. It is commonly known as a refund statement to the buyer's account as a credit note concedes and records a specific amount is credited to the account of the buyer. Use Eazybills to issue credit notes.

Difference between a Debit Note and a Credit Note

Debit note vs credit note becomes the principal key to understanding where the business regularly deals with both terms. Below is the list of key differences between a debit note and a credit note.

Meaning

A debit note is a document issued by the buyer to the seller to return the goods received due to quality defects or other issues.  A debit note in GST is similar.

A credit note is a financial document issued by the seller to assure that the purchase return is accepted by the buyer.

Issuer

A debit note is issued by the buyer.

A credit note is issued by the seller.

Purpose

The purpose of a debit note is to acknowledge an increase in the amount received from the buyer.  

A credit note is to acknowledge the decrease in the amount received from the buyer.

Accounting

Under the accounting term, a debit note is written in the purchase return books.

Under the accounting term, the credit note is written in the sales return books.

I. Multiple Choice QuestionsChoose the Correct Answer Question 1.Purchases book is used to record ……………..(a) all purchases of goods(b) all credit purchases of assets(c) all credit purchases of goods(d) all purchases of assetsAnswer:(c) all credit purchases of goods Question 2.A periodic total of the purchases book is posted to the ……………..(a) debit side of the purchases account(b) debit side of…

I. Multiple Choice Questions: Choose the Correct Answer Question 1. Accounting equation signifies ……………. (a) Capital of a business is equal to assets (b) Liabilities of a business are equal to assets (c) Capital of a business is equal to liabilities (d) Assets of a business are equal to the total of capital and liabilities Answer: (d) Assets of a business are equal to the total of capital…

Every business involves day-to-day activities and numerous transactions on the products which are to be sold and returned. Debit notes and credit notes are used by businesses as formal records for sale return and purchase return transactions. These notes let the buyer know how much credit they have available to them or how much more they still owe the seller and inform merchants of the amount that customers owe them. Let’s get to know more about debit notes and credit notes in detail.

What are debit and credit notes?

A debit note is a document sent by one party to another that certifies that the recipient's account has been debited in the sender's books. In this accounting entry, the account due to which the debit note is issued is credited and the individual to whom the debit note is to be sent is debited. A credit note is a document sent by one party to another that certifies that the recipient's account has been credited to the sender's books. It is a straightforward accounting entry where the account due is debited and the individual to whom the credit note is to be issued is credited.

When a supplier or customer issues a credit or debit note

The basic purpose of business notes is to keep track of purchases and sales. If there is any sale mistake, debit notes also function as receipts for transactions. Among these, variations in the number of items or the buyer's return of goods can be considered. This note is crucial for the organization’s purchasing and selling transactions. Hence, it must be collected and stored.

When a buyer overpays for a good, the buyer provides a debit note to the seller or supplier. However, when this happens, the supplier issues a credit note to the former. A debit note is issued in the instance of purchase returns whereas a credit note is issued in the event of sales returns. In simple terms, the debit note helps in reducing the buyer’s outstanding trade obligations. The client issues a debit note and the supplier must issue the latter a credit note when the goods are returned to the supplier. A credit note is written in red ink, while a debit note is written in blue ink. A credit note never indicates a positive sum, while a debit note always does. While a credit note lowers account payables, a debit note lowers account receivables. Each of these aforementioned information is vital about debit notes and credit notes.

Debit/Credit Note According to GST

Debit or credit notes may be issued for the reasons listed in GST filings.

Sales Return

Post Sale Discount

Deficiency in services

Correction of invoice

Change in POS

Finalization of provisional assessment