Debit Note VS Credit Note - What's the Difference?

What are Debit Notes and Credit Notes?

Debit and credit notes are used by businesses as formal records for sale returns and purchase returns transactions. A debit note is equal to a purchase return, it should be noted. A sales return is also equivalent to a credit note. These notes let the buyer know how much credit they have available to them or how much money they still owe the seller.

When organizations deal with both situations often, understanding the distinction between debit and credit notes is crucial. Additionally, there may be misunderstandings between how the buyer and the seller interpret certain phases.

What's the Difference Between Credit and Debit Notes?

Let's briefly consider the contrast between a charge note and a credit note.

A debit note is a report that the purchaser issues to a vendor and are utilized to demand a discount for excessive charges or inaccurate instalments. A credit note is a record that a dealer issues to a purchaser, and it is utilized to demand a discount for products that were not gotten or were harmed.

The fundamental distinction between credit notes and debit notes is that a debit note is given by a purchaser to a merchant, while a dealer gives a credit note to a purchaser.

Debit notes are issued when a buyer has overpaid for products or administrations, whereas credit notes are issued when a buyer has not gotten the products or administrations they paid for or when the merchandise or administrations gotten were harmed. And the most similitude between credit and debit notes in India is that they are both utilized to ask for discounts from the other party.


Here is a detailed comparison of debit notes and credit notes:

Special Details

Debit note

Credit note

Who issues it?

The buyer issues it.

The seller issues it.

What is the meaning?

In the case of quality issues or other reasons, a debit note is issued by the buyer to the seller. Debit notes indicate why goods are being returned.

The seller issues a credit note to confirm that the purchase return is accepted.



Can be issued

From the buyer's perspective, it is only issued for credit purchases.

From the seller’s perspective, it can be only issued in the event of credit sales.

Impact

It reduces account receivables in the books of sellers.

It reduces account payables in the books of the buyer.


Reflects a positive or negative amount?

A debit note reflects a positive amount.

A credit note reflects a negative amount.

Another Form of

In other words, it is form of purchase return. As a result, purchase return books are updated.

In other words, it is a form of sales return. As a result, sales return books are updated.

Issued in exchange of

The exchange of a debit note for a credit note is known as a debit note exchange.

The exchange of a credit note for a debit note is known as a credit note exchange.


Issued by a seller to the buyer/by a buyer to the seller

The seller issues debit notes to the buyer if the buyer is undercharged or the seller has sent additional goods.

The buyer issues a credit note as an acknowledgement of a debit note received.


Ink

It should be issued in blue ink.

It should be issued in red ink.



Some Common Reasons for Issuing Debit and Credit Notes

Credit Notes and Debit Notes may be required in a few different circumstances. Some typical justifications for issuing Credit notes and Debit Notes include:

  • The client was overcharged: If you by mistake overcharged a client, you'd be able to issue a credit note for the distinction.
  • The client wasn't given the right discount on the initial invoice: If a client was purported to receive a reduction but did not, you'll be able to issue a credit note for the discount quantity.
  • The product or service wasn't delivered: If you did not deliver the merchandise or service that was invoiced, you'd issue a credit note for the invoice quantity.
  • Correct an invoice with inaccurate information when it was issued, such as an erroneous price or amount.
  • To issue a refund for a came product or service that was broken.

Visit this article to learn more about a Debit Note and its format: What is Debit Note? | Meaning, Examples & Templates

How To Issue a Debit or Credit Note?

Credit or Debit Notes can be issued physically or through a computer program. On the off chance that the Credit and Debit notes are issued physically, at that point, they ought to be arranged on the company's letterhead and marked by the authorized individual. In the event that credit or debit notes are produced by the software, they will be issued by the program. They should be typed on business letterhead and signed by the appropriate individual.

You can visit this article if you want to learn more about What is a Credit Note.

What Information Should You Include on a Credit Note and Debit Note?

On the off chance that you wish to issue a credit note, you'll do so by making an unused credit note in your bookkeeping program. When making a credit note, you ought to incorporate the taking after information:

  • The name, address and GSTIN of the establishment
  • The name, address and GSTIN of the recipient
  • The original invoice number and date
  • The reason for issuing the debit note or credit note
  • The debit note or credit note number and date
  • The amount of the credit or debit note
  • The GST rate
  • The GST amount
  • The signature of the person issuing the debit note or credit note
  • A brief description of the goods or services

Additional notes

  • A credit or debit note issuance isn't subject to a time limit as long as it is made inside the significant financial year.
  • GST returns must be filed for all debits and credits within the taking after month, but for September, the month taking after the conclusion of the year when the supply was made and the month of recording the yearly return.
  • Credit notes adversely affect assessment collection, whereas debit notes do not.
  • A debit or credit note issued by a dealer to a buyer will not be considered a lawful report per GST law.

FAQS on Debit and Credit Notes

1. What is the purpose of a debit note?

A debit note may be a document issued by a vendor to a customer, informing the client that they owe the merchant cash. Debit notes are sometimes issued once there's a miscalculation on the initial invoice, like an incorrect rating or a shortage of goods.

2. What is the purpose of a credit note?

A credit note is a document issued by a seller to a buyer, informing the customer that the vendor owes them cash. Credit notes are a unit sometimes issued once there's a slip-up on the first invoice, like incorrect valuation or a shortage of goods.

3. What information should be included in a debit note?

- The date of the initial invoice

- The date of the debit note

- The reason for the debit note

- The amount of cash owed

4. What information should be included in a credit note?

- The date of the original invoice

- The date of the credit note

- The reason for the credit note

- The amount of cash owed

5. When should a debit note be issued?

Debit notes are typically issued when there is an error on the initial invoice, such as an inaccurate price or a shortfall of goods.

6. When should a credit note be issued?

Credit notes are typically provided when there is an error on the initial invoice, such as an inaccurate price or a shortfall of goods.