What is a Credit Note?

A Credit Note is a memo prepared and issued by one party to the other party, containing the details of the amount credited. It is usually issued to other party to amend the previous invoices due to whatsoever reason – returned goods, defects, undercharging etc. It is issued in exchange for a Debit Note. Here are some examples:

  1. A buyer issues a credit note to a seller because he is undercharged by the seller. At the same time, the seller issues a debit note to the buyer at an equal amount.
  2. A seller issues a credit note to a buyer because the goods were returned. At the same time, buyer issues a debit note to the seller.
  3. A seller issues a credit note to a buyer when the correct discount rate is not applied.

In short, a Credit Note is to credit the account of the other party while we receive a Debit Note from the party.

And a Debit Note is?

As you can see, a Debit Note is also a memo prepared and issued by one party to the another party, containing the details of the amount debited. Similarly, it is issued to other party to amend the previous invoices. It is issued in exchange for the Credit Note. Here are some examples:

  1. A seller issues a debit note to a buyer because the value of the invoice increases due to extra goods being delivered (or the goods already delivered) and the buyer has been undercharged. At the same time, a credit note is issued by the buyer to the seller.
  2. A buyer issues a debit note to a seller when he returns the goods to the seller. This can be due to defects or whatever other reasons. The seller will issue the buyer a credit note.
  3. A buyer’s account is overcharged, he sends a debit note to seller.

Again, in line with the credit note, a Debit Note is to debit the account of the other party while we receive a Credit Note from the party.

 

Accounting