Difference Between Debit Note and Credit Note
Both the debit notes and the credit notes are issued in the situation involving the return or cancellation of goods and services by one party to another, where debit note is issued by the buyer of goods and services if it is returned back to the vendor whereas the credit note is issued by the seller of goods and services if it is returned back to him by the purchaser.
In today’s business culture, the value of debit and credit note is unparalleled. Since every small business becomes big in almost no time, it’s prudent to understand these notes clearly.
- Debit noteDebit NoteWhen a percentage of the goods have a defect, the purchaser of the goods sends a debit note to the supplier of the goods, stating that they will reduce the purchase amount payable after adjusting for the defective goods. is an official, articulated form of purchase return. Through it, the buyer intimates the seller that they’re returning some goods that they have bought and mentioned the reasons behind it.
- In the same manner, a credit note is also an official, etched out, written format of stating sales return. Through it, the seller intimates the buyer that the money for which the debit note is sent is being returned.
Understanding these two in detail can revolutionize one’s business.
Debit Note vs Credit Note Infographics
- The purchaser usually issues a debit note, and the seller usually issues a credit note. But debit note can be issued by the seller when the buyer erroneously records more, and the later can also be issued by the buyer when the seller undercharges the buyer.
- The debit note is prepared in blue ink because it shows a positive amount. The later is prepared in red ink because it shows a negative amount.
- A debit note is issued because the purchaser wants to state that he is overcharged, or there is a percentage of defective products included in his purchase. A credit noteCredit NoteA credit note is a commercial instrument issued by the seller of goods and services to the purchaser if the goods and services are returned to him by the purchaser, informing him that the purchaser's account is credited in the seller's books of accounts., on the other hand, is issued in return to the debit note stating that the seller would credit the purchaser with the amount which was found defective or which was overcharged.
- The debit note doesn’t only affect the purchase return account. It may also reduce the purchase amount for the error of overcharging. A credit note also doesn’t affect only the sales return account. A credit note can also be issued for erroneously overcharging.
- A debit note is issued only in the case of credit purchase, and the other one is issued only in the case of the credit sale.
|Basis for Comparison||Debit Note||Credit Note|
|1. Meaning||It is the articulated form of purchase returns to the seller and intimating the reason behind it.||A credit note is a similar articulated form of sales return and informing that the purchase return is being accepted.|
|2. Another form of||Purchase returns of goods.||Sales returns of goods.|
|3. Sent by||The purchaser of goods who found one or more discrepancies/defects in the goods;||Sales team who have sold off the goods;|
|4. Accounting entry||In the buyer’s account, the supplier account is debited, and the purchase return is credited.||In the seller’s account, the sales return account is debited, and the customer account is credited.|
|5. Result||The purchase account is reduced.||The sales account is reduced.|
|6. Ink used||Blue ink.||Red ink.|
|7. Entry in||Purchase returns the book (mostly)||Sales returns book (mostly)|
Understanding both is very important for any business because, at different times, you may need to issue each of these. While issuing a debit note or credit note, one thing you should remember that you cannot issue a note just like that. You should do your due diligence, see through the goods yourself, and then see whether there’s any other alternative.
For example, while issuing a credit note in return to debit note, many sellers issue credit notes stating that the amount for which the debit note is issued can be used by replacing the goods without returning the amount. If you understand this well, a lot of issues of business will solve, build great relationships with your stakeholders & other businesses, and you would also thrive as a business.
Video on Debit Note vs. Credit Note
This article has been a guide to Debit Note vs. Credit Note. Here we discuss the top differences between them with infographics and comparison table. You may also have a look at the following articles to learn more about accounting.