Debit note is commercial instrument used by buyers to convey the request to issue credit note in favour of buyers. It is popularly known as debit memorandum (memo). It is also act as a source document which is used by the buyer to purchase returns journals. The seller may act upon this debit note to issue new invoice or debit note as an adjustment on amount of purchase issued in previous invoice. These notes are generally used in business transaction between companies or business and customers. Such transaction may attract credit as seller complete the shipment first and then receives the vary amount. Generally, real sale is done when goods are exchanged for money while issuing invoices. Debit note and credit note are both part of accounting system and are used to keep a track or to follow the trail for future transactions.
Apart from formal letter format debit notes may be issued as an shipping receipt that disclose information regarding goods received by the buyer and the amount due to the seller is duly noted as payment is not expected by the seller until and unless official invoice is generated and posted in favour of the buyer. It gives buyer an opportunity to return goods if it doesn’t suits him without offering any payment.
Sometimes it is not necessary that debit note issued in form of formal letter but are posted informally to serve as reminder to the seller if, he has not generated official invoice in favour of the buyer or forgot to review the previous invoice. It may also be possible that these informal postcards may contain the information regarding the settlement of the relevant amount.
Do not consider debit note as and permanent way to convey outstanding debts as not all companies follow the same procedure to settle the question of payment. It depends upon the buyer that he may ask to issue a debit note containing relevant information to meet his record keeping requirements.
Also read:- Types of Accounts involved in Accounting System
Important Characteristics of Debit Note
- Debit notes are issued always by buyer for the amount debited on account of the seller with a valid reason.
- Debit notes affects purchase return book.
- A debit note is issued only on credit purchase where buyer wants to reduce the amount for many reason possible like delivery of defective product.
- It is positive for the purchaser.
- After the acceptance of the debit note this seller issue the credit note in favour or account of the buyer.
What is credit note?
Credit note is an official document used as a commercial instrument for conveying the credit amount on account of the buyer by seller. The adjustment is made on the account of the buyer for the goods exchanged or returned. Sometimes it may be possible that Seller had generated the previous invoice in favour of buyer with wrong amounts as of relevant transaction.
A credit note is issued when customer return the goofs and the value of same may be less or equal to the amount he had already paid. Therefore, seller may offer some gift or store credit to the buyer.
For example:
Suppose a company A sells goods worth rupees 100000 to company B and at the time of delivery company be returns goods worth rupees 20000 to the company A. Therefore, company A should issue a credit note on account of company B, where the company B has to pay only rupees 90000 to the company A.
Important Characteristics of Credit Note
- It is sent to inform the credit form on account of the buyer with all relevant reason for such transaction.
- The entry is made in sales work in case where goods are returned.
- It is also sent when seller found the goods undelivered, damaged or incorrect at buyers end.
- It always shows negative amount.
Read:- What is Real Accounts and Nominal Account?
Difference between Credit and Debit Note
Debit and credit notes both are the important branches of the accounting system and managed by accounts department as they note the daily transaction on account of the company for the sale and purchase between buyer and seller.
Debit note
- When buyer returns any goods delivered by the seller, he also send the debit note along with returned goods containing the relevant information and the amount for the very transaction.
- Debit note in forms the seller about the debit made on his account by the buyer.
- The purchase return book is updated on the basis of the debit note issued for the return goods.
- The sale is always made in credit.
- It is generated and posted in form of regular invoice.
Credit note
- When the seller receives goods returned from the buyer, he issues credit notes.
- Credit note is issued with all the relevant information possible for the goods returned.
- A credit note is always sent by seller if, goods delivered damaged or incorrect.
- It is a negative transaction for the seller.
- It affects the sales return book.