Explain the following concepts in brief :
(a) Credit Note
(b) Debit Note
Answers
Answer:
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What are Debit Notes?
An invoice is raised whenever there is a purchase or sale transaction with a consideration. When such consideration falls short due to certain anomalies, or extra goods being delivered to the purchaser, then the seller shall issue a debit note in that case. Such a debit note will take care of the upward revision of prices in an already issued invoice and will intimate the purchaser of the future liability that he has to pay.
Debit notes are raised in cases where there is a tax invoice issued, but the taxable value of the goods therein changes after such issuance. Similarly, there can be a tax invoice issued but the amount of tax changes after such issuance. In both these cases, a seller has to intimate the purchaser about such change.
There is no specified format to issue a debit note, but it can be issued as a letter or a formal document. It is mostly a document specifying future liability and having commercial implications. They increase the credit period of a transaction, but are affected after shipping of goods takes place.
What are Credit Notes?
Similar to the debit notes, credit notes are issued when there is a downward revision in prices of goods or services supplied. It can be compared to a negative invoice that has the ability to nullify the effects of an invoice. It offers a reduction in the value of the invoice and thus, reduces the liability of the purchaser. It is often inflicted with a return of goods to the supplier. It always has a negative impact on the accounting balance in the books of the seller.
Sometimes, the purchaser is unhappy with the quality of product shipped to him. In that case, he shall return the goods to the supplier, and in return, the supplier issues the purchaser, a credit note to the extent of the value of the goods being returned. There is no predefined format in which the credit note has to be issued; rather it is an intimation to the purchaser about such credit being offered.
Explanation:
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Debit Note and Credit Note are used while the return of goods is made between two businesses. Debit Note is issued by the purchaser, at the time of returning the goods to the vendor, and the vendor issues a Credit Note to inform that he/she has received the returned goods.