What is a Debit Note?
A debit note, at times also referred as a debit demo, is a document raised by the buyer and in used in specific situations where the former wants to indicate or request a return of funds paid by him to the seller; if the goods received by him are incorrect or damaged or to cancel the purchase order in total. A buyer can issue a debit note or a debit memo in various situations and is a way to put forward his request for getting a credit note from the seller and is nothing but an evidence to support a return of purchase in his accounting books. As mentioned above, a buyer can raise or issue a debit note under various circumstances, such as:
- If the goods received by him are either incorrect or damaged.
- If the seller has charged him more than the agreed price.
- If the cost or the description of products mentioned in the invoice is incorrect.
Like credit note, debit note are also involved in business-to-business transactions and include details such as date on which the debit note was issued by the buyer, a serial or unique identification number, description of previous business transaction, details of items returned including sales tax and the signatures of the appropriate company authorities. Debit note are different from invoices because firstly they are formatted as letters with the above mentioned details and secondly they may not require immediate payment, as it is the case with invoices. You can also think of debit note as claims made by the customers or the buyers against business errors and in case of returned goods from a vendor, a debit note shows or reflects the change in the purchaser books.
Since debit note are raised by the buyers to request of funds, it is always shown with a positive or plus sign in the buyer’s account books, unlike credit note which are shown by a minus sign in the seller’s account books.
How to add Debit Note in Nomisma?
You can refer through below video where you can learn how to add Debit Note in Nomisma –
What is a Credit Note?
A credit note, at times also referred as a credit memo, is a document created by the seller and is used in the situations where an earlier generated invoice needs to be cancelled and is, thus a part of invoicing. A credit note can be issued under various situations such as if the amount mentioned in the invoice is overstated or if the discount rate entered in the invoice is not right or if the goods sent by the supplier turn out to be bad or if the buyer is not happy with the product and sends it back to the supplier. And if that’s the case, then you, as a supplier have to issue a credit note to the buyer because HMRC does not allow you to simply delete or amend an existing invoice.
UK accepts issuing of credit note as a legally acceptable way and it also helps you to have the record of the sale in your account while indicating it clearly that order was cancelled with the applied reason and the funds were returned to the buyer. A credit note is always mentioned and shown in negative.
A credit note is not issued only when an order or invoice has to get cancelled but is also issued when there is any change to an existing order, which also means that the invoice has to be regenerated or when a customer wants to make some changes in his order i.e. if he wants to reduce or increase the quantity of the product or remove either one or more products in one go. Any changes in an existing order demands for an edited or modified invoice, however UK rules do not allow doing so, hence the credit note is issued.
How to add Credit Note in Nomisma?
You can refer through below video where you can learn how to add Credit Note in Nomisma –
Comparison Chart between Debit Note and Credit Note
To look at it, credit note and debit note are two sides of the same coin and are different from each other in more than one way. The comparison chart between debit note and credit note is as following:
|Basis For Comparison||Debit Note||Credit Note|
|Meaning||Debit note is nothing but a document, which can also be used as an evidence to reflect that a debit is made to the seller’s account.||Credit note is nothing but an articulated form of sales return and is used to reflect that a credit is made to the buyer’s account.|
|Implies||Purchase return of goods.||Sales return of goods.|
|Issued By||Buyer or the purchaser who is not happy and content with the quality of the products received by him. In most of the cases, the purchased items are returned because of some defect or discrepancies in the goods.||Either by the seller himself or by his sales team who have sold off the goods.|
|Accounting Entry||Once the debit note is issued, the supplier account is debited and customer account is credited.||Once the credit note is issued, the supplier account is debited and customer account is credited.|
|Represents||Positive amount||Negative amount|
|Use of||Blue Ink||Red Ink|
|Exchanged For||Credit Note||Debit Note|
|Which Book Is Updated On The Basis Of The Note||Purchase Return Book||Sales Return Book|
|Result||Purchase account is reduced.||Sales account is reduced.|
|Effect||Minimization in account receivables.||Minimization in account payables.|
Key Differences between Credit Note and Debit Note
Credit note and debit note have become an integral part of today’s business culture as business and corporations have become large and so have their purchases and so have their sales and purchases. As mentioned above, debit note and credit note are two sides of same coin, very same yet quite different from each other. Key differences between debit note and credit note are as below:
- Credit note is nothing but an articulated form of sales return and is used to reflect that a credit is made to the buyer’s account whereas debit note is nothing but a document, which can also be used as an evidence to reflect that a debit is made to the seller’s account.
- Credit note is raised or issued by a seller or a vendor whereas a debit note is issued by a purchaser or customer.
- If a seller wants to raise a credit note, he will make the corresponding entry in his accounting books with red ink, however when a buyer or customers issues a debit note, he will make the entry in his accounting books with blue ink.
- Credit note and debit note are issued occasionally. When a credit note is issued, it is issued in return or reply to a debit note from the customer and it implies that the seller would credit the customer with the amount which was overcharged or found defective. Debit note, on the other hand, is issued to raise a situation where the vendor has either overcharged his customer or later has received defective products.
- Credit note is indicated with a negative sign whereas debit note is indicated with a positive sign.
- A credit note does not only affect the sales return account and can be issued if the customer has been charged wrong. Similarly, a debit note does not only affect the purchase return account, it can also reduce the purchase amount for error of overcharging.
- A credit note is issued only in the case of the credit sale whereas a debit note is issued only in the case of credit purchase.
- When a credit note is issued, sales return account is debited and customer account is credited whereas when a debit note is issued, supplier’s account is debited and customer’s account is credited.
How Nomisma Solution Bookkeeping Software will help to manage Debit Note and Credit Note?
Our Bookkeeping Software is enriched with features such as automated bank reconciliation system and management of credit note and debit note, which provides bulk upload and sending facility for sales and purchase invoices and thus helps to a large extent in reducing the time you spend on bookkeeping tasks. Other features of the software include customizable outputs, VAT return submissions, easy reimbursement, real time cash flow position etc which is not than a real blessing for a bookkeeper and for a business. Credit note and debit note have become an integral part of today’s business culture as business and corporations have become large and so have their purchases and so have their sales and purchases and it is important for a bookkeeping software to raise debit note and credit note as and when required. Also the HMRC has introduced Making Tax Digital, it has become all the more important to have a software which is in compliance with the Making Tax Digital initiative of the HMRC. What makes Nomisma a great deal is its 14-day trial package which can help you in getting an overview of what the software is all about and thus you can make a better and informed decision. Try Nomisma Today.
If you are facing any problem to add debit note or credit code, You can call our experts at +44(0)20-3021 2326 or e-mail us at firstname.lastname@example.org