Debit Note
A debit note or Debit Memorandum (memo) is one type of commercial document which is issued by a buyer to a seller as a means of a formal request to the seller to issue a credit note. At the time of returning the goods, the buyer issues a debit note where he mentions, he has debited the seller accounts in his books (buyer’s) of account and requests the seller to credit his account (buyer) which is maintained by the seller.
A debit note is issued to inform the seller that his account is debited equivalent of goods returned to him. At this stage, the buyer mentions the reasons for returning the goods. Commonly this is used in the case of credit sales.
Example:
Assume, Richard Jons Plc supplied 10,000 cloths to Sims Superior Limited. The selling price per cloth is $ 10 and the total sales amount is $100,000. After proper scrutiny, Sims Superior Ltd identified 125 pcs clothes are defective and he planned to return these clothes to Richard Jons Plc. The total value of this returning goods is $ (125 x10) = $1,250.
Siams Superior will request Richard Jons Plc to pass the following Journal entry and record in the books of accounts:
Journal Entry in the books of ” Richard Jons Plc”:
Sales Return A/c Debit $1,250
Debtors A/c Credit $ 1,250
Credit Note
The Credit Note is the Note which is sent by the seller to its buyer when goods are returned by the buyer due to damage or any other reason. After receiving the goods, the seller informs the buyer that your account with us is being credited with the amount mentioned in the credit note. After, receiving the credit note the buyer will also send a debit note to the buyer for the same amount for the same credit note.
Consider the following treatment in A/c language:
Suppose you are the Seller and I am your customer. As I am the customer, as a seller, you will record me as a Receivable, and I will be liable to pay you. Your books of Accounts will have a debit balance against my transaction.
But, after receiving the goods, I realized you delivered me the wrong goods or you made an excessive bill to me. As a customer, what will you do? Of course, you will send a mail to the supplier stating the discrepancies. When this mail is converted to an accountable manner, will be called a Credit Note. That means you will request the seller to reduce your receivable amount as mentioned in the credit Note.
The reverse will apply for a Debit Note.
It is just an information document for recording purposes so that you become safe in case any dispute arises due to balance differences. It is a protection. Even a simple email with the required information can be construed as a Debit/Credit Note if meant so.
The buyer returned the goods to the seller and enclosed the Debit note. After receiving returned the goods and debit note from the buyer, the seller prepares a credit note and sends it to the buyer as an intimation to the buyer showing that the money in the related account is debited. In this respect, the sales return book will be updated on the basis of the credit note. A Credit note generally shows a negative amount.
Example:
Assume, Richard Jons PLC supplied 10,000 cloths to Sims Superior Limited. The selling price per cloth is $ 10 and the total sales amount is $100,000. After proper scrutiny, Sims Superior Ltd identified 125 PCs clothes are defective and he planned to return these clothes to Richard Jons Plc. The total value of this returning goods is $ (125 x10) = $1,250.
Siams Superior will request Richard Jons PLC to pass the following Journal entry and record in the books of accounts:
Journal Entry in the books of the buyer (Siams Superior Ltd):
Creditors A/c Debit $1,250
Goods Returned A/c Credit $ 1,250
Comparison Chart of Debit and Credit Note
| Debit Note | Credit Note |
| Debit Note is the note which is prepared by the purchaser in favor of the seller to debit the account of the Purchaser. | Credit Note is the response to a debit note where the seller informs the purchaser that his account is debited as per the Debit note. |
| Blue ink is used in Debit Note | Red ink is used in Credit Note |
| Purchaser return books are updated on the basis of debit note | Sales return books are updated on the basis of credit note |
| Through debit note account receivable is minimized | Through Credit not accounts payable is minimized |