Difference Between Credit Note and Debit Note

Credit Note vs Debit Note

If you have an account with a bank, you can see the entries in your passbook as either credit or debit. When you deposit money in your account or get a cheque in your name, it is marked as credit and the balance in your account goes up by that amount. On the other hand, all withdrawals or spending through cheque or ATM card are marked as debit to your account and your account balance goes down accordingly. Similarly in private businesses, there is a system of credit note and debit note that works along similar lines. Let us see the differences between credit and debit note.

If you purchase raw material from a supplier and the bill is wrongly inflated, you can get the mistake rectified by pointing out the mistake to him and issuing a debit note to him for the difference amount. He will then issue a credit note for the amount to you to tally the account. Similarly, if you are a franchise of a company and deposit VAT, you have to issue a debit note for the amount you deposited against which the company will issue you a credit note that you can take out from the sales of the company through your retail counter. In the same business, you may be receiving cheque for the commission earned by you on monthly sales. But if in any month the company is not able to issue a cheque in your favor, it can issue a credit note for the amount that works just as a cheque and you can deduct that amount from the sales while depositing the rest in company’s account.

Suppose there is a declared discount by the company but the invoice issued by them does not mention any discount, you can issue the difference amount debit note to the company. The company, realizing its mistake then issues the relevant credit note for the aforesaid amount in your favor.

If as a businessman, you order raw material of certain value but the material turns out to be of inferior quality that you do not like and return it back to the supplier, he is obliged to issue a credit note in your favor that automatically cancels the invoice raised by him for the returned raw material.

In short, credit notes reduce the amount receivables from the customer whereas debit notes reduce the amount payable to a vendor. The basic objective of a debit note is to bring to the notice of the supplier or the vendor that you have returned goods and stand to receive credit note for the same.

In brief:

• A debit note has the opposite effect of a credit note.

• A buyer issues a debit note to the supplier when he is wrongly overcharged or when he is returning goods

• A debit note can be issued by the supplier when he has mistakenly undercharged a buyer.