Debit Note and Credit Note: Key Difference & Similarities

Both a debit note and a credit note are formal accounting documents used by organizations, although they have different purposes.

What is a Debit Note?

Debit notes, also known as debit memos, are commercial documents that serve as a formal request for a credit note from a buyer to a seller. The Purchase returns journal gets its information from this document. A debit note is the name for this sort of note.

Debit memos are another name for debit notes. If the buyer receives damaged or defective products or services, or if the consumer cancels a transaction, the buyer may request a refund from the vendor. A provider must first issue a debit note before issuing a credit note. The debit note serves as a formal request from the buyer for the supplier to issue a credit note.

In some situations, buyers may return some or all payments to sellers by issuing debit notes to them. The error may be caused by damaged or incorrect items received or cancellation of the order, among other reasons. In the buyer’s accounting books, a debit note is evidence of a purchase return. However, a credit note shows that the product has been returned. 

A consumer claim is filed when you obtain goods or services from a seller that do not match your expectations. If you need to return products to a provider for any reason, the debit note can be issued.

The following are some of the most prevalent reasons for issuing debit notes:

  • Getting damaged or defective merchandise.
  • The invoice has been overcharged by the buyer.
  • On the invoice, the amount is incorrect.

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What is a Credit Note?

Commercial documents issued by a seller to a buyer are known as credit notes and credit memos. A sales return journal’s source document is a credit note. A credit note is the name for this type of document. Credit memos are another name for credit notes. A damaged or poorly supplied item, a canceled transaction, or an inaccurate invoice can all result in a claim. A purchaser or customer may use this document as a reference for a future order.

Credit notes are frequently issued for the reasons listed below:

  • Several credit notes are permitted as long as the invoice amount does not exceed the total.
  • Invoices that were previously sent with errors.
  • Discounting mistakes.
  • Payments on pending invoices are canceled.

Debit  Note Vs Credit Note: Key Differences

Comparison Factors Debit Note Credit Note
Meaning A debit note is a document that reflects debiting the account of the other party. The Credit Note is an instrument used to notify the other party that his account has been credited in his books.
Ink Color Used Blue Ink Red Ink
Represents Positive Amount Negative Amount
Which book is updated in accordance with the note? Purchase Return Book Sales Return Book
Effect Minimization of account receivables Minimization of accounts payable.
Exchanged for Credit Note Debit Note

Detailed information that should be included in a Debit Note and Credit Note

Debit and credit notes are issued when certain goods are returned to the seller. Using a debit note, the buyer informs the vendor that he is returning some products that he purchased. A credit note, on the other hand, informs the consumer that the money on the debit note has been refunded.

In a credit or debit note, the following information must be included:

  1. The supplier’s name, address, and GSTIN.
  2. The financial year’s unique alphanumeric serial number.
  3. Date of publication.
  4. A GSTIN, as well as the beneficiary’s name and address. If the recipient is not registered, you can use his or her full name and address.
  5. The invoice number should be included with each debit or credit note.
  6. The supplier has signed and stamped the document.

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Additional Remarks on Debit Note and Credit Note

  • Credit or debit notes can be issued at any time as long as the year is correct.
  • Except for September, which is the month following the end of the financial year when the supply was made and the month of filing the annual return, all GST returns must include a debit and a credit note for each month.
  • Credit notes will have a detrimental impact on tax collection, whilst debit notes would have no effect.

Is there a time limit for retaining Credit Notes/Debit Notes?

Credit and debit note records must be kept for seventy-two months after the due date for completing the annual return for the year concerning such accounts and records. When such business accounts and records are kept manually, they must be preserved at each related business location listed in the certificate of registration, and they must be accessible at each related business location where such accounts and records are kept digitally.

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Frequently Asked Questions

In what situations should a credit note be issued by the supplier?

When the first tax invoice was issued and the taxable value was greater than the actual taxable value. The recipient is dissatisfied with the products or services received and asks a partial refund, including the return of any goods.

When does a supplier need to issue a debit note?

It is discovered after the issuance of a tax invoice that the reported taxable value is less than the actual taxable value. After receiving a tax invoice, it is determined that the amount charged is less than the real tax payable.

How does a supplementary invoice work?

A taxable entity will submit a supplementary invoice if a deficiency is discovered in an already raised tax invoice.

How does a revised invoice work?

All invoices issued between the date of GST implementation and the date of issuing of the GST registration certificate must be corrected and reissued within one month of the registration certificate’s issuance.

What is a debit note in GST?

Debit notes are written requests from customers to sellers or suppliers to amend or refund payments made in connection with faulty goods or services.

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