what is a debit note and credit note?

Debit Note

This is referred to a note that is issued by the business to the other concerned parties. It represents the details and reasons for debiting the concerned party's account.

Example: Goods worth Rs 2,000 returned by the business to  Mr. Ramesh (a supplier). 

In this case, Ramesh's Account will be debited with Rs 2,000 as the goods purchased from him were returned to him. A issue of Debit Note in this case explains that Ramesh A/c has been debited with Rs 2,000 with explanation, i.e. due to the goods returned by the business.

 

Credit Note

Similar to the Debit Note, a Credit Note is also issued by the business to the other concerned parties. It represents the details and reasons for crediting the concerned party's account.

Example: Goods worth Rs 2,000 were returned by Mr. Ramesh (a customer) to the business.  

In this case, Ramesh's Account will be credited with Rs 2,000 as the goods sold to him were returned back to the business. A issue of Credit Note in this case explains that Ramesh's A/c has been credited with Rs 2,000 with explanation, i.e. due to the goods returned by him.

Both Debit Note as well as Credit Note also contains other important information such as, quantity of the goods (in units), amount of the transaction, Challan Number, Date, Names and Addresses of both the parties involved in the transaction.

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Debit Note - It is a sales document used in complaints processing to request a debit memo for a customer
Credit Note - A transaction that reduces Amounts Receivable from a customer is a credit memo. For eg. The customer could return damaged goods

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Debit note:

 In accounts there were many instances when an Organization receive debit note or it has to issue a debit note to its suppliers, customers, employees, third party and so on.

 
when you receives a debit note, from a third party, you have to credit the account of the issuer of the note and debit the related expenses /item account.
 
suppose you have purchased  an item at  a rate of Rs.100 however by mistake your supplier had billed you at  a rate of Rs.95, then your supplier may issue a debit note for balance of Rs. 5 plus vat and other applicable duty. In such a case, you have to debit respective purchase and duty amount as narrated in the debit note and credit the supplier account.
 
Similarly if you have issued a debit note to your customer, you have to debit your customer’s account and credit the related account.
 
I am highlighting some major circumstances under which you may issue  or receive a Debit Note
 
1) Rate difference in sales/purchase invoice
 
2) Difference between billed and actual quantity of the invoice
 
3) Interest on late payment to and from suppliers/customers
 
4)Recovery interest or any amount from employees due to loss or damage to company’s assets or any other cause.
 
5)Wrong credit or debit entry in the books of account of either party.
 
6) Quality difference
 
6) Any other circumstances which requires to issue a debit note
 
 
Credit note 
In the same way, as explained above, circumstances may arise when an organisation may require to issue a credit note or receive a credit note.
 
In case of issue of Credit note to a third party, you have to credit supplier’s account and debit the related expenses head account.
 
Let’s assume, you have agreed to pay a purchase invoice within 1 month time to your suppliers however, you couldn’t manage to pay and your supplier agreed for a delayed payment at an interest rate of @2. p.m. for the same
 
Now, you have to issue a credit note to your supplier debiting interest account and crediting his account with the amount of interest.
 
One thing is very important to note, that you can not issue a debit or credit note to any government department, bank etc. It is applicable only for private organisation.
 
An employee can not issue a debit or credit note but you can do so.
 
In tally, Debit and credit notes are managed through Journal voucher entry.
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thanks sidharth bansal for answering my question.next time pls ur make answer a little shorter 

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thanks angel sharma

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ok buddy

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