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Millions of sales and purchases occur daily, and just as many consumers send items back when they discover that the product does not meet their expectations, these customers also initiate millions of returns. A debit note and a credit note are used whenever there is a return of items made between two different firms. When returning the products to the vendor, the purchaser is responsible for issuing a debit note. In contrast, the vendor is responsible to issue credit notes to advise the purchaser that they have received the returned items.
This article will discuss everything about debit note vs credit note.
Accounting documents such as debit and credit notes are used by businesses for several purposes. Online invoicing software may be used to create these. Separate from an invoice, these notes inform purchasers of the amount of current company credit or the amount they still owe. They are also essential for shipment tracking, due payment dates, and account credit status.
What is a credit note?
It is a communication from a seller to a customer that credit has been applied to their account. Credit memos are another name for these documents. In the event that you need to cancel a whole or a part of an invoice, you may send a credit note.
- Order modifications made after an invoice has been sent
- Merchandise or services denied
- During transport, products were damaged.
- Errors in pricing on the first invoice
A credit note does not involve cash exchange; rather, it is intended to balance a previously paid invoice but can still be prepared using online payment processing software. We will see a credit note example later in the section.
Credit note example
ABC Ltd sells items to XYZ Enterprises, valuing INR 10,000,000. XYZ Enterprises notifies ABC Ltd via a Debit Note or Memo at the actual delivery time that 2,00,000 INR worth of damaged products have been discovered.
ABC Ltd (seller) provides a credit note to XYZ Enterprises Ltd for INR 2,00,000 /-. (buyer). This decreases the seller’s receivables by INR 20,000, and the buyer is only obligated to pay INR 8,00,000.
Now, in the next part of debit note vs credit note, let us see what a debit note is?
What is a debit note?
A debit note, also known as a debit memo, is a document sent by a seller to a buyer informing them of their outstanding financial obligations using online invoicing software. Commonly seen in business-to-business interactions, such as when one company provides products or services to another before an official invoice is received. The debit notes “notes” the transaction for reasons of documentation.
Debit notes can also be used in enterprise operations, such as when a consumer returns credit-purchased products to a firm. In this instance, the buyer presents the seller with the debit note.
Head-to-head comparison between debit note vs credit note
So, we have seen what credit note and debit note are. Now it’s time to see a head-to-head comparison of debit note vs credit note.
|Parameter of Comparison||Credit Note||Debit Note|
|Who prepares it?||It comes under the seller to issue a credit note.||It comes under the responsibility of the buyer.|
|When can it be issued?||It can be issued only in the event of credit sales using online invoicing software.||From the buyer’s viewpoint, it can only be provided for credit purchases.|
|Where does it impact accounting books?||It lowers the number of account payables recorded in the buyer’s books.||As a result, sellers see a decrease in their account receivables.|
|Is it created in exchange?||The issuance of a credit note in return for a debit note.||The debit note is exchanged for a credit note.|
|What will be the entry aspect of debit note vs credit note||Credit in a customer account
Debit in Sales return
|Credit in purchase return
Debit in supplier account
|The reflection of value in accounting books||A credit note displays a negative balance.||A debit note displays a positive balance.|
Here is a breakdown for debit note vs credit note
- Debit Note refers to the note that one company sends to the other to inform them of a debit to the seller’s account in the buyer’s books. The term “credit note” refers to a document used in business transactions sent from one party to another to advise the recipient that a credit has been applied to the buyer’s account in the seller’s books.
- When preparing a credit note, blue ink is used, whereas red ink is used when writing a debit note. But nowadays, businesses use online invoicing software.
- After receiving a credit note as payment, a debit note will be issued.
- A credit note will prepare a negative amount for you. In contrast, a debit note will reflect a positive amount in any online payment processing software.
- Receivables are reduced due to the use of debit notes. On the other side, a credit note will lower the amount owed.
- On the other hand, an update to the sales return book is accomplished with the assistance of a credit note.
So, that is all about debit note vs credit note.
Normally, a debit note is issued when a return is outward. In contrast, in the case of a return inward, businesses issue credit note.
Whenever a customer returns products to the seller, he or she will issue a debit note, and the seller will offer a credit note in exchange.
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