Debit and Credit Note in Accounts

Following my article on learning on basic of accounting, today we will learn what is debit note and what is a credit note

and how the same are dealt with in accounts ?

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In accounts there were many instances when an Organization receive debit note or it has to issue a debit note to its suppliers, customers, employees, third party and so on.

when you receives a debit note, from a third party, you have to credit the account of the issuer of the note and debit the related expenses /item account.

suppose you have purchased  an item at  a rate of Rs.100 however by mistake your supplier had billed you at  a rate of Rs.95, then your supplier may issue a debit note for balance of Rs. 5 plus vat and other applicable duty. In such a case, you have to debit respective purchase and duty amount as narrated in the debit note and credit the supplier account.

Similarly if you have issued a debit note to your customer, you have to debit your customer’s account and credit the related account.

I am highlighting some major circumstances under which you may issue  or receive a Debit Note

1) Rate difference in sales/purchase invoice

2) Difference between billed and actual quantity of the invoice

3) Interest on late payment to and from suppliers/customers

4)Recovery interest or any amount from employees due to loss or damage to company’s     assets or any other cause.

5)Wrong credit or debit entry in the books of account of either party.

6) Quality difference

6) Any other circumstances which requires to issue a debit note


In the same way, as explained above, circumstances may arise when an organisation may require to issue a credit note or receive a credit note.

In case of issue of Credit note to a third party, you have to credit supplier’s account and debit the related expenses head account.

Let’s assume, you have agreed to pay a purchase invoice within 1 month time to your suppliers however, you couldn’t manage to pay and your supplier agreed for a delayed payment at an interest rate of @2. p.m. for the same

Now, you have to issue a credit note to your supplier debiting interest account and crediting his account with the amount of interest.

One thing is very important to note, that you can not issue a debit or credit note to any government department, bank etc. It is applicable only for private organisation.

An employee can not issue a debit or credit note but you can do so.

In tally, Debit and credit notes are managed through Journal voucher entry.

I will post the same by writing an another article.