Debit note for reduction in receivable & Credit note for reduction in payables.
If we put in simple words, credit notes explains money owned to buyer because of downward revision of the bill. On the other hand, debit notes in GST referred to as money given to you because of an upward revision in the bill.
These two terms are made for Sales return & Purchase return transaction on the official Business document.
What is a credit note?
A Credit Note is a financial statement in which the amount is sent by a seller to a customer when credit is in the buyer’s account.
The concerned individual must take a credit note:
- Supplying the product / service to the particular person with tax invoice contains credit note.
- Tax paid in the tax invoice in much higher than tax bill of this supply. In this case, the Good Buyer can return the supplied good if they’re not satisfied with the product delivered.
- If the seller made a mistake on the original invoice, they can issue a credit note to correct the error and reduce the amount owed by the buyer.
- Credit note issued on discount if that offer is on the bill after invoice is issued.
- Seller issue a credit note to confirm any pre-payment made by the buyer. This situation applies when a customer cancels an order before getting shipped. Credit Note in GST signifies clarity & transparency.
Credit note reflects negative transactions, buyer issues a credit when debit note received, & it reduces the buyer payable in their handbook.
Credit signifies the error in the original invoice that is issued by the seller. You don’t need to make a new legal document for the required changes.
How to make a credit note in a simple way:
- Choose a credit note template.
- Get the company’s logo.
- Get the Credit note number & date of having it.
- Clarify the Credit note’s invoice number.
- Enter the Supplier and Buyer GST number with supply location.
- Invoice details.
- Supplier details.
- Contacts with GST.
- Verification details.
What is a debit note?
Debit Note, aka debit memo, is a commercial document issued in (B2B) transactions. It is with the formal notification to the buyer from the seller related to an increase in the amount owed when purchased something. Scenarios lies in requesting add on payments & on returning good.
If your invoice is lacking, all the charges that needs to be added, then seller might What is the debit note to get extra payment on the invoice.
Price increased after the initial invoice in the amount of goods & services due to changes in the value of the good.
In case, buyer made the mistake on the invoice related to quantity or choice regarding the product, then the seller need to make the bridge between add on payments.
Key things to remember:
Debit Note is on defective goods charged by the buyer to inform the seller about the condition if they have the partial payment. Credit notes are applied on whole or partial refunds in such cases. Mainly on increase in the amount after the issued invoice.
Communication is necessary when charging debit note On any documentation you can say revised invoice with new prices. You must have a copy of debit note for accounting requirements. Debit Note provide a professional way for sellers to communicate any adjustments to the original amount and ask for additional payment from the buyer.
When your price of good is fluctuated after the invoice is generated. Good can be of bad quality, damaged one, & of returned quality. In the case, the amount of price reduced is settled in the debit note to showcase the cash debited from the seller’s account. Purchaser has to give the supplier the price minus the debit note price. Good for the targeted purchaser.
How Does Debit Note Proceed?
- Debt Reduction for the seller: Debit notes allows relief & amount owned to the seller for already shipped goods.
- A decrease in the Goods Price: Second way is to get the price reduction of a particular good.
- Adjust the items: Seller & vendor must know the number of goods to agree upon to clarify the situation.
Benefits of Debit Notes:
The Debit Notebook contains relevant details of return products & Exchanges between buyer with seller.
Proof of both Debit & Credit Note benefits a lot.
Debit notebook is maintained to create an account for credit notes received.
Supplier maintains the real debit note. To make a record from credit note is published.
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