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Understanding credit and debit note

by Madhuri Boinwad
Understanding credit and debit note

A debit note refers to a document that is issued to the seller of the products by the buyer or the consumer. It is issued to request a credit note. On the other hand, a credit note is issued to the consumer or a buyer by the seller of the product. It is also called a credit memo. The debit note is a positive amount that indicates that a certain amount has been debited from his account and a reduction in expense has occurred whereas the credit note is a negative amount that indicates the fact that the consumer has returned the goods or products. Both the notes are exchanged in lieu of each other. 

Comparison between credit note and debit note 

There are various differences between a credit and a debit note. Here are a few of them-

  • A credit note is provided to the buyer or the consumer whereas the debit note is provided to the seller of the goods. 
  • The ink used in writing a debit note is blue in colour whereas the ink used in writing the credit note is red in colour 
  • The debit note is considered as a positive amount whereas the credit note is considered as a negative amount.
  • The debit note indicates the deduction in account receivables whereas the credit note indicates a deduction in the account payables.
  • The debit note requests for issuance of credit note whereas the credit note asks for issuance of debit note. 
  • When a debit note is issued, purchase returns are updated whereas sales returns are updated when a credit note is issued.
  • A debit note is issued when a buyer or consumer returns their goods to the seller whereas a credit note is issued when a seller has delivered their goods or products in extra quantity.
  • Purchase returns are made using the debit note whereas sales returns are made using the credit note.
  • The result of a debit note leads to the reduction in purchase accounts whereas the result of a credit note leads to the reduction in the sales accounts.

Learn more about credit and debit notes over here.

What are journal entries made in case of a debit and credit note?

  • When a debit note is issued, the following journal entry is made-

Sales returns account – Debit (Dr.)

To debtor’s account – Credit (Cr.)

  • When a credit note is issued, the following journal entry is made-

Creditor’s account – Debit (Dr.)

To goods returned account – Credit (Cr.)

Conclusion

A small change or mistake in recording the debit or a credit note can mess with all your purchase and sales books. It is better to understand the application of both the notes before entering any records. It can also lead to loss or profit depending upon the situation. The usability of either credit or the debit note stays the same whether you are dealing with UTGST or CGST. A detailed analysis of all these factors from UTGST full form to how credit note and debit note works in union territories or inter-state goods purchase and sale is available here.

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