What Is Debit Note And Credit Note? Differences Explained!

Table of Contents:

1. Difference Between Credit Note And Debit Note

2. What Is Meant By Debit Note?

3. Why Do We Issue Debit Note?

4. Who Sends A Debit Note?

5. What Do You Mean By Credit Note?

6. What Is Credit Note Example?

7. What Should Be On A Credit Note?

8. What Is The Difference Between Credit Note And Debit Note?

9. Debit Note Vs Credit Note

10. Key Takeaways

1. Difference Between Credit Note And Debit Note

Both debit-notes and credit-note are business-related documents that a proprietor has to deal with while running a business. If you have started a company recently, you should go through all the information here to understand the distinguishing traits of both the terms.

Debit Note And Credit Note are accepted all across the world as instruments of payment correction. Also, these instruments are even accepted in tax filing as well and are best when explained in the context of GST (goods and service tax). For a more in-depth understanding of credit-note and debit-note, read on.

2. What Is Meant By Debit Note?

Debit-note is issued by the client (customer) to the seller each time there is a problem with debit statements. Such errors are bound to happen as a part of human mistakes, and these notes help in the reconciliation. Delivery faults are a common occurrence in business, and payment adjustments are necessary to handle the situation. Debit-notes are also called a debit memo.

3. Why Do We Issue Debit Note?

If a customer gets a faulty item on the delivery, there is a debit-note to be issued requesting the seller to make a refund. The same is the case with e-commerce as well, each time the buyer receives a damaged item.

4. Who Sends A Debit Note?

Buyers can also issue debit-notes if there are wrong entries on the invoice. In such cases, the seller is bound to negotiate the invoice again to check for incorrect entries. At times, situations can arise when the description of the goods is wrongly entered in the invoice, and the client sends a debit-note. Another situation that might occur is when the seller charges a higher price for the sale than what should have been according to the deal. Such cases also call for a debit-note issuance.

5. What Do You Mean By Credit Note?

Credit-notes are issued by sellers when there is a situation that demands making adjustments in the payment. If there are faults in the invoice, the selling party can address it on the credit-note. Generally, a credit-note consists of messages related to refunding and cancelling invoices. Since suppliers cannot delete an invoice sent to a customer, credit-note acts as a document that shows the aspects which are corrected from the sellers' end.

6. What Is Credit Note Example?

A seller can send a credit-note to a client/customer when payments are wrongly made. In most cases, the payable amount might increase than what the client has paid earlier to the supplier. In such cases, the buyer might return the excess goods or adjust the payments. In many instances, the price of a specific commodity can increase after the deal is made. A seller has to issue a credit-note along with the invoice stating the situation clearly. If the buyer is satisfied with the new price or even the explanation, he has to pay a higher amount of the bill. Otherwise, the order can be cancelled as a whole.

7. What Should Be On A Credit Note?

A credit note can also be issued if the supplier fails to deliver commodities on the specified date as per the contract. This note should have the reason for the delay and a new date by which the supplier promises to deliver the goods. Wrong tax charges can also come under inclusion by mistake from the supplier's end. A credit-note can act as a document where the supplier makes payment adjustments and charges the right amount of tax against a product or service.

Overall, debit-notes and credit-notes act as interactive documents between the two parties of a buy-sell contract that includes monetary transactions. So, always try to keep track of these notes if you have started a new B2B organisation. This can help you keep up your reputation among your customers and keep track of your accounts properly. Credit-notes can help a business hold a decent rating of GST compliance. An organisation with an excellent rating can get a more client-centric approach. Other parameters which this rating depends on are proper tax payments, timely GST filing, and clear data regarding input credits.

8. What Is The Difference Between Credit Note And Debit Note?

As the owner of a B2B entity, you must know about the credit and debit-note format. However, if you have a team of financial experts, they can look after the debit and credit notes. The most crucial aspect you have to keep in mind is that the GST guidelines are minutely followed while making these notes. Here is a brief explanation:

• Heading: You have to mention if a document is a credit-note or a debit-note first.
• Serial Number: For each credit and debit-note, you must generate a unique serial number. This should indicate the financial year during which the note is issued. A serial number can be made unique by adding up to 16 characters and alphanumeric symbols. You can add a slash or a hyphen wherever needed.
• Invoice reference: The invoice number should be added as the reference on credit or debit-note.
• GSTIN number: The GSTN number is another vital thing you need to add to the invoice. Apart from this, you have to add contact numbers and address of your organisation.
• Ink colour: If you are preparing a credit-note for a customer, always use red ink. Blue ink is only used while making a debit-note.
• Delivery address and other details: The debit and credit note must include delivery details, like the name and contact number of the recipient. Moreover, you must mention the delivery address too.
• Digital signature: In the case of a debit-note, the digital signature of the consumer must be present. Similarly, credit-notes must contain the digital signature of the supplier.

Apart from the above things, you should add more specific information about a particular invoice as it can be spotted. If the GST norms are not followed by the supplier/purchaser while making a debit/credit-note, it can be cancelled as a whole.

9. Debit Note Vs Credit Note

As an owner of a B2B entity, you must be aware of the key points for preparing the debit/credit note. A debit-note should contain a positive amount regarding an invoice. Similarly, credit-notes should have a negative amount. All B2B organisations must keep a record of the credit and debit-notes for six years. Maintain the GST laws while preparing the credit/debit-note and produce it as evidence whenever necessary. Moreover, you must maintain the ink code for preparing either of the two notes as per the rule.

Difference between Debit Note & Credit Note:

10. Key Takeaways

Nowadays, you can use online tools to make credit note and debit note and issue them accordingly. However, you must follow the restrictions set by the government to maintain a good record in the market when understanding the difference between debit note and credit note. The government imposes restrictions on you issuing a credit-note as it decreases tax liabilities.

If you have not yet planned to form an efficient team to look after the finances and monetary transactions, consider doing it right now to ensure proper sustainability in the market. Hope this blog clears all your confusions on the difference between credit note and debit note.

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FAQs

Q. What is Debit Note and Credit Note?

Ans- Credit-notes are issued by sellers when there is a situation that demands making adjustments in the payment while Debit-notes is issued by the client (customer) to the seller each time there is a problem with debit statements.

Q. What is debit note in simple words?

Ans- A debit note is a record used by a businessperson to inform the customer of present debt responsibilities, or a report created by a consumer when restoring goods acquired on credit.

Q. What is credit note with example?

Ans- A credit memo or credit note is a business document issued by a seller to a buyer. It is a compression of the word "credit memorandum".

Q. Is debit note same as invoice?

Ans- A debit receipt or debit note is similar to that of an invoice. The main difference is that invoices regularly show a purchase, where debit notes and debit receipts display changes or records on transactions that have previously taken place.

Q. What is the main purpose of a credit note?

Ans- A credit note is basically like a legal document, just like your invoices. It gives you the essential ability to eliminate out a previously issued invoice, each in full or in parts.

Q. Is a debit note a legal document?

Ans- A debit note can be equally equivalent to a credit note. Besides, it's issued from the purchasers' side and is dispensed before a credit note can be issued from the supplier. The document, hence, acts as evidence to confirm a purchase return in the accounting ledgers of a customer.

Q. Is there any time limit for issuing credit note?

Ans- According to the terms of section 34(2) of CGST Act, 2017 the time limit to issue a Credit note is as follows: “A supplier can issue a credit note against a Tax Invoice on or before 30th September of the next financial year or the date of filing of annual return pertaining to the Tax Invoice, whichever is earlier.”

Q. Who can issue debit and credit note in GST?

Ans- Under section 2(38) of the GST Law, debit notes are explained briefly. If an incorrect amount( taxable value/tax) is entered in the invoice or the value of the invoice rises due to additional goods/services are delivered, the supplier issues a debit note.

Q. Who sends a debit note?

Ans- When a buyer returns goods to the seller, he sends a debit note as an implication to the merchant of the cost and quantity being rendered and asking for the return of money. In other instances, a debit note is sent to notify about the debit originated in the account of the retailer along with the purpose stated in it.

Q. Do I have to deal with debit-note and credit-note as a small business owner?

Ans: No, as a small business owner, you will be running a business-to-customer entity that does not come under the GST tab as per the turnover. These documents are needed in case of running B2B or B2C businesses structures with high turnover.

Q. What is credit note and debit note with example?

Ans- Debit-note is issued by the client (customer) to the seller each time there is a problem with debit statements. A credit note can also be issued if the supplier fails to deliver commodities on the specified date as per the contract. Overall, debit-notes and credit-notes act as interactive documents between the two parties of a buy-sell contract that includes monetary transactions.

Q. What can happen if I fail to keep records of debit-note and credit-notes?

Ans: Failure of keeping records of debit-notes and credit-notes is never expected from a businessperson. It can lead one to experience legal proceedings and a sharp drop in the GST compliance rating.