What is debit note &credit note

*Debit note


*When the purchaser returns the goods to the seller the Purchaser sends a Debit Note to the seller & the Seller sends a Credit Note to the purchaser.

*A debit note or debit memorandum (memo) is a commercial document issued by a buyer to a seller as a means of formally requesting a credit note


*A seller might also issue a debit note instead of an invoice in order to adjust upwards the amount of an invoice  already issued (as if the invoice is recorded in wrong value).

Note:Debit note is recorded on purchase return day book.

*Reason for issuing debit note

• When the buyer’s account is overcharged, he sends a debit note to seller.
• When the buyer returns goods to the seller, then also he delivers debit note.
• When the seller’s account is undercharged by the buyer, then he issues debit note.
• The seller issues a credit note to buyer as an acknowledgement of the Debit Note. It is written in blue ink. In general, Debit note reduces the receivables.

*Credit Note

A credit note is issued to correct a genuine mistake or to give a credit to your customer under the following situations:

1. Correction of a genuine mistake (e.g. goods invoiced as standard-rated which should have been exempt or zero-rated);
2. Supply did not take place;
3. Charges are partly or fully waived before/after delivery of the goods;
4. Goods or services are accepted, but terms of the contract are not fully met (e.g. sub-standard goods are accepted by the customer at a reduced price);
5. Goods are returned or services are not accepted; or
6. Goods and services are supplied for an unconfirmed consideration.

Note:Credit note is recorded on sales return day book.

*Information Required on Credit Notes

To be valid for GST purposes, a credit note must show clearly:

1. An identifying number e.g. a serial number;
2. The date of issue;
3. Your name, address and GST registration number;
4. Your customer's name and address;
5. The reason for the credit (e.g. "returned goods");
6. A description sufficient to identify the goods and services for which credit is being allowed;
7. The quantity and amount credited for each description;
8. The total amount credited excluding tax;
9. The rate and amount of tax credited; and
10. The total amount credited including tax.

Comparison Chart

BASIS FOR COMPARISON	DEBIT NOTE	CREDIT NOTE
Meaning	Debit Note is a document which reflects that a debit is made to the other party's account.	Credit Note is an instrument used to inform that the other party's account is credited in his books.
Use of	Blue Ink	Red Ink
Represents	Positive Amount	Negative Amount
Which book is updated on the basis of note?	Purchase Return Book	Sales Return Book
Effect	Minimization in account receivables.	Minimization in account payables.
Exchanged for	Credit Note	Debit Note