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Difference Between Debit Note and Credit Note

debit note vs credit noteMillions of purchase and sale transactions occur in day to day life, and so does the returns are made by many customers, when the find the products are not upto their requirement. Debit Note and Credit Note are used while the return of goods is made between two businesses. Debit Note is issued by the purchaser, at the time of returning the goods to the vendor, and the vendor issues a Credit Note to inform that he/she has received the returned goods.

When the goods are returned to the seller or supplier, a debit note is issued to him which indicates that his/her account has been debited with the repective amount. On the other hand, when a customer returns goods, a credit note is issued to him which shows that his account has been credited with the amount indicated in the note. Here in the given article we have discussed the substantial differences betweenn debit note and credit note, take a read.

Content: Debit note Vs Credit Note

  1. Comparison Chart
  2. Definition
  3. Key Differences
  4. Video
  5. Conclusion

Comparison Chart

Basis for ComparisonDebit NoteCredit Note
MeaningDebit Note is a document which reflects that a debit is made to the other party's account.Credit Note is an instrument used to inform that the other party's account is credited in his books.
Use ofBlue InkRed Ink
RepresentsPositive AmountNegative Amount
Which book is updated on the basis of note?Purchase Return BookSales Return Book
EffectMinimization in account receivables.Minimization in account payables.
Exchanged forCredit NoteDebit Note

Definition of Debit Note

A commercial instrument made and issued by the purchaser and delivered to seller giving details regarding the amount debited from the seller’s account and the reasons for the same is known as Debit Note. The document provides information to the vendor that a debit has been made to his account in the buyer’s book. The reasons for debiting the account are given as under:

  • When the buyer’s account is overcharged, he sends a debit note to seller.
  • When the buyer returns the goods purchased by him, then also he delivers the debit note.
  • When the buyer undercharges the seller’s account, then he issues debit note.

The seller issues a credit note to the buyer as an acknowledgment of the Debit Note. It is written in blue ink. In general, Debit note reduces the receivables.

Difference Between Debit Note and Credit Note

Difference Between Debit Note and Credit Note

Definition of Credit Note

A memo prepared and issued by one party to the other party, containing the details of the amount credited to the buyer’s account and the reasons for so, is known as Credit Note. It is issued in exchange for the Debit Note. It gives the information to the buyer; that is account is credited in the vendor’s book. The note is prepared with red ink. The reasons for issuing a credit note is as under:

  • When the buyer overcharges the seller’s account, he issues the credit note.
  • When the supplier gets back the goods sold by him to the buyer, then also credit note is issued.
  • A buyer can also send credit note, in case the seller undercharges him.

The issue of credit note shows that the account payables are reduced. In general, it shows the negative amount.

Key Differences Between Debit Note and Credit Note

The following are the differences between debit note and credit note:

  1. A memo sent by one party to inform the other party that a debit has been made to the seller’s account, in buyer’s books, is known as Debit Note. A commercial document which is sent by one party to inform the other party that a credit has been made to buyer’s account, in seller’s books is known as Credit Note.
  2. Debit Note is written in blue ink while Credit Note is prepared in red ink.
  3. Debit Note is issued in exchange for Credit Note.
  4. Debit Note represents a positive amount whereas Credit Note prepares negative amount.
  5. Debit Note reduces receivables. On the other hand, Credit Note reduces payables.
  6. On the basis of the Debit Note, purchase return book is updated. Conversely, sales return book is updated with the help of a Credit Note.

Video: Debit Note Vs Credit Note

Conclusion

Normally, a debit note is issued when there is a return outward (purchase return) while in the case of return inward (sales return) credit note is issued. In a transaction, when the buyer returns the goods to the seller, the buyer will issue a debit note and the opposite party will issue a credit note in exchange for the debit note. Hence, they are the two aspects of the same transaction.

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Comments

  1. shraddha says

    It is very Nice article.it was very helpful for me to clearing my concept about Debit and credit note,
    Thank you!!!

    Reply

    • Surbhi S says

      Glad to know that the article helped you. We really value your views and opinions, keep sharing and visiting.?

      Reply

  18. SHAREN says

    Please clarify regarding the tax relevance.Buyer is eligible for tax on purchase,once the goods returned what is further …….

    Reply

  20. Kate says

    A nice article. I like it.

    But if a seller issued an invoice and send it to a customer. Then, the customer returned the item, so seller issued a credit memo, and the customer issued a debit memo. Then, the customer pays fully for the invoice on which items returned. Then, what happens to the credit and debit memos? The seller’s A/R still reduces and the customer’s A/P reduces, right? The customer can offset their debit memo against the seller’s credit memo?

    Reply

  22. HENRY says

    Have been wondering on this; What document is sent in case of a shortage in cash repatriation? That is if you’re collecting cash on behalf of a certain company and you realize a shortfall and you want them to debit the suspense a/c.

    Reply

  23. Lee says

    Great article. I was wondering, I leased a van and paid off 10 months worth of outstanding payments so I could purchase a new van. The contract is now ended. I just received a Credit Note from finance company for £1,795.00

    On the credit note it states 5 months worth of payments I had left in the contract, which I paid off on the settlement offer as part of the 10 months I had left.

    Why would they send me a credit note?

    Many Thanks

    Reply

  24. HAREM RASHID SAADI says

    Very good explanation

    if I am wrong please you can correct me

    1- I am going to a store and will buy three computers and I will pay (3000$)
    then once I got back them I will figure it out that I only need two computers and I have already mentioned in my book (3000$)
    so I decided to return one computer which costs (1000$) so

    1- I have to make a debit note in my book one computer (1000$) and credit in my book (1000$)

    Am I right?

    Reply

  30. Adell says

    Hi i got question,
    Debit Note reduce acc receivable. But if undercharge, should it be increase in acc receivable? and why need to issues Debit Note instead of Credit Note?

    And vise versa
    Credit Note reduce acc payable, if undercharge it is increase in acc payable right?still need to issues Credit Note?

    I’m still not clear

    Reply

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