Difference Between A Debit Note and A Credit Note: Meaning, Purpose & Use

As a business owner, credit note & debit note are the two terms that might confuse you. However, their roles are different, the debit notes and credit notes. No matter how fancy these terms might appear, you should know about them as a business owner to have smooth finances. Delve into the blog below, and let’s understand their meaning, differences and purposes.

What is a Credit Note?

A credit note is like a document of acceptance or agreement from the seller’s side to the buyer. Acceptance refers to an error in the buyer’s invoice, which might make the customer unsatisfied; hence, the seller shares a credit note as an apology, either by doing reimbursement or giving store credit. 

What is a Debit Note?

A legal document for a return from the buyer to the seller is called a debit note, commonly called a debit memo. The customer sends this specific message when there is a problem or error with the things they have purchased. It needs to meet the expectations of the buyer. The buyer’s record proves that they have asked for a refund.

Debit Note vs. Credit Note: What’s the Deal?

Here’s a simple comparison:

WHAT IT DOES	DEBIT NOTE	CREDIT NOTE
What it Means	It says you owe someone money.	It tells you someone owes you money.
Who Uses It	Buyers usually use it.	Sellers are the ones who use it.
Example	When you return something you bought, you get a debit note.	When a seller gets back something they sold, they give you a credit note.
When to Use It	If you buy something on credit, you might need a debit note.	If you’re a seller and someone returns what they bought, you use this.
How It’s Marked	Debit notes often have blue ink on them.	Credit notes often use red ink.
What it Shows	It shows you’ve paid money or owe less.	It shows you’re owed money or someone has paid you back.
Where it Goes	Debit notes go in a book called the “Purchase Return Book.”	Credit notes go in a book called the “Sales Return Book.”
What it Does	It reduces the money you owe.	It reduces the money someone owes you.
Making an Entry	It’s like writing in your account that you paid someone back.	It’s like marking down that someone paid you or you got something back.

Got it? Now, let’s see when and why we use these notes.

When should you use a Debit Note & a Credit Note?

Here’s when you should reach both Credit note & Debit Note:

Use of GST Debit Note:

• Increasing taxable amount: When you want to up the ante on the amount of a supply, unleash the GST Debit Note.
• Increasing GST levied on the invoice: Do you feel like the GST charged on the invoice needs a boost? Cue the GST Debit Note to the rescue.To ease down the process you can pick out a GST billing software that manages all your needs.

Use of GST Credit Note:

• Returns or inadequate supplies: If your recipient isn’t happy with the goods or discovers they’re not up to snuff, it’s time for a GST Credit Note.
• Reduction in taxable amount: When you’re aiming to scale back the taxable amount of a supply, the GST Credit Note is your best friend.
• Reduction in GST amount charged: Need to dial down the GST rate or value charged on an invoice? The GST Credit Note has your back.

Information that must appear on Debit and Credit Notes

Hold up! Before you start scribbling away on your notes, here’s a checklist of must-have info:

• Transparency: Label your document as an “updated invoice” or “supplementary invoice.”
• Supplier’s contact info: Include the supplier’s name and GSTIN.
• Unique serial number: Make it consecutive and striking with a mix of alphabets, numbers, or special characters.
• Date of issuance: Let the world know when your note came.
• Recipient info: Registered recipients need their name, address, and GSTIN, while unregistered recipients require extra details like delivery addresses and zip codes.
• Tax invoice details: Serial number, date, taxable value, tax rate, and tax credit/debit recipient details should all be on point. Taxation details are essential.
• Signature: Seal the deal with the supplier’s or authorized representative’s signature or digital counterpart.

Munim Accounting Software: Making Finance Easy

Now, let’s talk about something cool: Munim Accounting Software. It’s like having a super-smart friend who helps you with your finances. Handling debit and credit notes becomes a piece of cake with this software, as it is an all-in-one software that manages your purchase returns and sales returns with ease.

Key Takeaways

• Debit note functions similarly to a receipt and is used when returning merchandise or making payments to others.
• A credit note might be seen as a seller’s way of stating, “Hey, I got back what you didn’t want, and I owe you less now.”
• Munim Accounting Software: Your new best friend for keeping track of all your financial stuff.

Conclusion: It’s Time To Wrap

It’s time to wrap up the discussion on debit and credit notes. Although both of them work as a document between the buyer and the seller, their purpose is different. One is issued from the buyer’s end, and the other from the seller’s. So, understanding the above points is crucial, whether you are giving a debit note for a purchase return or doing a sales return under a credit note.

FAQs

1. What is an example of a debit note?

A debit note is a voucher that is given from one party to another that shows that the sender’s books have been debited from the recipient’s account. As an example, “ABC” is a dealer that purchases goods from “XYZ”. Following delivery of the materials, ABC finds that the consignment includes faulty items totaling Rs. 10,000.

2. Who writes credit notes?

A credit note is a statement that the seller sends to the buyer explaining that there was an error on the original invoice and that the customer would receive a refund.

3. Who prepares the debit note?

Section 34(3) of the CGST Act of 2017 mandates that a seller or supplier of goods and services issue a debit note in conjunction with a tax invoice for the supply of goods and services. The taxable value of the supply is greater than the invoiced taxes.

4. What is a three-way match?

A three-way match is performed between the purchase order, the products receipt note, and the supplier’s invoice before the supplier’s invoice may be paid. It is helpful to have a three-way match when choosing whether or not to pay debts.