January 16, 2023
Every business involves day-to-day activities and numerous transactions on the products which are to be sold and returned. Debit notes and credit notes are used by businesses as formal records for sale return and purchase return transactions. These notes let the buyer know how much credit they have available to them or how much more they still owe the seller and inform merchants of the amount that customers owe them. Let’s get to know more about debit notes and credit notes in detail.
A debit note is a document sent by one party to another that certifies that the recipient's account has been debited in the sender's books. In this accounting entry, the account due to which the debit note is issued is credited and the individual to whom the debit note is to be sent is debited. A credit note is a document sent by one party to another that certifies that the recipient's account has been credited to the sender's books. It is a straightforward accounting entry where the account due is debited and the individual to whom the credit note is to be issued is credited.
Credit notes and debit notes become crucial to comprehend on the basis of how an organization typically handles both instances. The seller's and the buyer's perspectives may also affect how the phrases are understood. But in standard business jargon, the following comparison is made.
|
PARTICULARS |
DEBIT NOTE |
CREDIT NOTE |
|
Who issues it? |
Issued by the product purchaser. |
Issued by the product seller. |
|
What does it mean? |
To return the products obtained due to quality difficulties or for any other reason, the customer issues a debit note to the seller. |
The product’s vendor issues the credit note as confirmation that the returned goods are accepted. |
|
Can be issued |
From the viewpoint of the buyer, only in the case of credit transactions. |
only when credit sales occur. |
|
What is the impact? |
Account receivables in the sellers' records are reduced. |
Account payables in the buyer’s records are reduced. |
|
Reflects |
A positive amount is shown on a debit note. |
The amount on a credit note is negative. |
|
Form |
It is an additional type of product return. |
It's an additional type of sales return. |
|
Accounting |
Updating buy return books is the result. |
The result is an update to the sales return books. |
|
Entry |
Supplier Account Dr. |
Sales return account Dr. |
|
Issued in exchange of |
Issued in exchange for the credit notes. |
Issued in exchange for the debit notes. |
|
Issued by a seller to the buyer |
If the buyer is undercharged or the seller sends extra products, the seller gives a debit note to the customer. |
As a confirmation of a debit note received, the buyer issues a credit note. |
|
Ink |
Issued in blue ink. |
Issued in red ink. |
The basic purpose of business notes is to keep track of purchases and sales. If there is any sale mistake, debit notes also function as receipts for transactions. Among these, variations in the number of items or the buyer's return of goods can be considered. This note is crucial for the organization’s purchasing and selling transactions. Hence, it must be collected and stored.
When a buyer overpays for a good, the buyer provides a debit note to the seller or supplier. However, when this happens, the supplier issues a credit note to the former. A debit note is issued in the instance of purchase returns whereas a credit note is issued in the event of sales returns. In simple terms, the debit note helps in reducing the buyer’s outstanding trade obligations. The client issues a debit note and the supplier must issue the latter a credit note when the goods are returned to the supplier. A credit note is written in red ink, while a debit note is written in blue ink. A credit note never indicates a positive sum, while a debit note always does. While a credit note lowers account payables, a debit note lowers account receivables. Each of these aforementioned information is vital about debit notes and credit notes.
Debit or credit notes may be issued for the reasons listed in GST filings.
The credit note and debit note records must be kept on file for seventy-two months following the deadline for submitting the annual return for the year relevant to such accounts and records. If such accounts and documents are maintained manually, they must be preserved at each associated location which is listed in the certificate of registration. Also, if they are maintained digitally, they must be accessible at each related location.
Both debit notes and credit notes have their own significant importance in business with respect to the perspective of buyers and sellers. With the credit note and debit note adjustment features of Accoxi, managing sale return and purchase return transactions in businesses can be simplified. Moreover, Accoxi is a credible accounting software that comes with industrial rich features for handling all accounting tasks smoothly that help to maintain a competitive edge in the global market.
If you are looking for an effective accounting software to ease your accounting tasks, Accoxi can be your best solution. Connect with us today and get to know Accoxi better.
