Credit note and debit note

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Querist : Anonymous

Querist : Anonymous (Querist)

29 January 2014 i want to know about credit note and debit note in detailed.please expalain with examples.

Hemant Kumar

Hemant Kumar (Expert)
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29 January 2014 A debit note is a note indicating an amount owed by a person or company. Serves the same function as an invoice. However an invoice is usually used for sales made and are entered in running number in the sales journal. To bill someone for anything else owed you other than for a sale, you use a debit note.

A Credit Note or Credit Memo is a document used to adjust or rectify errors made in a sales invoice which has already been processed and sent to a customer. If you have already sent an invoice to a customer but now need to provide a credit for that invoice, you would send him a Credit Note or Credit Memo. You can think of a credit note as a "negative invoice."

Considering two companies account A’s (Purchases$) & B’s (Sells$), they make financial transaction within each other. Assuming B is a trader and the goods sold are what it normally sells, then
In A's books
Dr Purchases or Merchandize Inventory
Cr Cash or Accounts Payable
Since A is doing the purchasing it wouldn't be issuing any document other than perhaps the purchase order.

In B's books
Dr Cash or A/cs Receivable
Cr Sales
B would issue a sale invoice to A

Considering two companies account A’s (provide training$) & B’s (attends training$), they make financial transaction within each other. I'm assuming A is not a school or training centre, otherwise fees earned will be like normal sales to A.
In A's books
Dr Cash or A/cs Receivable
Cr Sundry income
If training is not A's core business, then A might issue a debit note to B

In B's books
Dr Training expense
Cr Cash or A/cs Payable
Since B is attending the training it would not issue any document except perhaps the registration form to register a place at the semina

Querist : Anonymous

Querist : Anonymous (Querist)

29 January 2014 what is effect on vat

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Asha Kanta Sharma online

Asha Kanta Sharma

(Expert)
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20 July 2024 Certainly! Credit notes and debit notes are commercial documents used in business transactions to correct or adjust invoices. They are issued when there is a need to rectify errors, make adjustments for goods returned, or change certain terms of a transaction. Here’s a detailed explanation of each:

### Credit Note:

A credit note is a document issued by a seller to a buyer, indicating that the seller is crediting the buyer's account due to various reasons such as overbilling, goods returned, discounts allowed, or any other adjustment. Key points about credit notes include:

- **Purpose**: To reduce the amount payable by the buyer to the seller.
- **Issuance**: Typically issued by the seller after the original invoice has been issued.
- **Content**: It includes details such as the reason for issuing the credit note, reference to the original invoice (if applicable), amount being credited (which may include adjustments for taxes like VAT), and any revised payment terms.
- **Example**: Suppose a seller invoices a buyer for Rs. 10,000 for goods delivered. Later, it is discovered that Rs. 1,000 worth of goods were returned. The seller issues a credit note for Rs. 1,000 to adjust the invoice amount downwards.

### Debit Note:

A debit note is a document issued by a buyer to a seller, indicating that the buyer is debiting the seller's account due to various reasons such as underbilling, goods received in excess, additional charges, or any other adjustment. Key points about debit notes include:

- **Purpose**: To increase the amount payable by the buyer to the seller.
- **Issuance**: Typically issued by the buyer after the original invoice has been issued.
- **Content**: It includes details such as the reason for issuing the debit note, reference to the original invoice (if applicable), amount being debited, and any revised payment terms.
- **Example**: Suppose a buyer receives goods but later realizes that the quantity received was more than what was invoiced. The buyer issues a debit note to the seller to adjust the invoice amount upwards.

### Differences Between Credit Note and Debit Note:

1. **Direction of Adjustment**:
- **Credit Note**: Reduces the amount payable by the buyer to the seller.
- **Debit Note**: Increases the amount payable by the buyer to the seller.

2. **Initiator**:
- **Credit Note**: Issued by the seller.
- **Debit Note**: Issued by the buyer.

3. **Reasons for Issuance**:
- **Credit Note**: Overbilling, goods returned, discounts allowed, etc.
- **Debit Note**: Underbilling, excess goods received, additional charges, etc.

### Importance in Accounting:

- Both credit notes and debit notes play crucial roles in maintaining accurate accounting records and ensuring financial transparency.
- They help in reconciling accounts, correcting errors promptly, and documenting adjustments for audit and compliance purposes.

In summary, credit notes and debit notes are essential documents used in business transactions to adjust invoices and ensure accurate financial reporting. They reflect adjustments in amounts payable/receivable due to various reasons, thereby maintaining transparency and accuracy in commercial transactions.