Millions of transactions occur in every nook and corner of the world in every millisecond. Debit Note and Credit Note occurs in every business transaction; Credit Note is a commercial document issued by the seller to the buyer and a Debit Note is issued by the customer/buyer of the goods to the supplier/seller.
What is a credit Note?
Credit Note also known Credit Memo is a legal document prepared by the supplier/seller issued to customer/buyer mentioning the amount credited to the customers/buyers account pertaining to the below reasons;
- If there is any mistake in the price mentioned in the original invoice.
- If they want to increase/decrease the amount of goods ordered.
- If goods were damaged during the transit.
- If the amount entered in the invoice is overcharged or the discount rate is incorrect.
This is done to keep the accounting records straight because once the entry is recorded it can’t be deleted or edited. The Credit Note is often linked to invoice and can be used in any situations where the invoice needs to be changed or re-issued. Credit Note should contain the following details;
- Date in which the credit note is issued
- Quantity and products need to be included
- Contact details
- The Credit Note Number
What is a Debit Note?
A Debit Note widely used in business transactions is also known as Debit Memo. Debit note is a document used by buyer/customer to request the return of funds paid to the seller. There is no time limit for issuing debit notes since the time value of money indicates that the sum of money is worth more now than the sum of money in the future. A buyer can put forward the request for debit note in the following circumstances;
- If the received goods are incorrect or damaged ones.
- When the buyer’s account is overcharged than the agreed price.
- If the cost or the product description in the invoice is incorrect.
Debit Note contain the following details;
- The date on which the Debit Note is issued.
- Serial number of the product
- Details of the items returned.
Debit Note acts as the source document for the purchase return journal.
The Difference Between Credit and Debit Note
|Basis for comparison||Debit Note||Credit Note|
|Meaning||Debit Note issued to reflect that a debit is made to the seller’s account.||It is an evidence to reflect that credit is made to buyers account|
|Effect||There is a reduction in account Receivable||Indicates the reduction in account payable.|
|Updation||Updated in purchase return book||Updated in sales return book|
|Exchanged for||Credit Note||Debit Note|
|Implies||Purchase return of goods||Sales return of goods|
|Represents||Positive change||Negative change|
Debit Note and Credit Note are the two aspects of the same transactions. Debit Note is issued when there is a return outward and Credit Note is issued when there is a return inwards.