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Credit Note

A credit note is a document sent by a seller to a buyer notifying of a credit to the buyer's account for returned goods. It reduces the amount the buyer owes and may allow further purchases. A credit note is issued for the value of returned goods and shows a negative amount. It is prepared like an invoice but shows a credit instead of a debit.

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113 views

Credit Note

A credit note is a document sent by a seller to a buyer notifying of a credit to the buyer's account for returned goods. It reduces the amount the buyer owes and may allow further purchases. A credit note is issued for the value of returned goods and shows a negative amount. It is prepared like an invoice but shows a credit instead of a debit.

Uploaded by

henryvijayf
Copyright
© © All Rights Reserved
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Credit Note

A credit note is a document sent by a seller to its buyer or, in other


words, a vendor to the customer, notifying that a credit has been provided
to their account against the goods returned by the buyer.

It reduces the amount due to be paid by the customer, (if the amount due is
Nil) then it allows further purchases in lieu of the credit note itself.

A credit note is issued for the value of goods returned by the


customer, it may be less than or equal to total amount of the order.

Example – Company-B sells goods worth 1,00,000 to Company-A, however,


10,000 worth of goods were found damaged due to some reason & this is
notified toCompany-B at the time of actual delivery.

Company-B (seller) issues a credit note for 10,000 in the name of Company-
A(buyer). This reduces the receivables of the seller by 10,000 and the buyer
is only required to pay 90,000.

Important Characteristics

1. It is sent to inform about the credit made in the account of the buyer
along with the reasons.

2. The sales return book is updated on its basis. (In case of return of
goods)
3. It is usually sent by the seller if the goods are found incomplete, damaged
or incorrect at buyer’s end.

4. It shows a negative amount.

Journal Entry for Credit Note


In the books of buyer

Goods returned by the buyer are purchase return, the action of returning
goods by the buyer leads to;

1. A decrease in liability to pay the respective creditor.


2. A decrease in expense previously incurred to purchase those goods.

Creditor’s A/C Debit

To Purchase Return A/C Credit

In the books of seller

Goods returned to the seller are sales return, the action of returning goods
to the seller leads to;
1. A decrease in revenue previously booked as sales.
2. A decrease in assets as the payment will not be made by the debtor
anymore.

Sales Return A/C Debit

To Debtor’s A/C Credit

Sample Credit Note Format


Difference Between Debit Note and
Credit Note
Debit and credit notes are an important part of today’s business culture as
corporations have grown large and so have their credit sales and purchases.

Accounts payable management and accounts receivable management


include dealing with credit and debit notes on a daily basis. Therefore,
knowing the difference between a debit note and credit note is important.

Debit Note
1. When a buyer returns goods to the seller, he sends a debit note as an
intimation to the seller of the amount and quantity being returned and
requesting the return of money.

2. A debit note is sent to inform about the debit made in the account of the
seller along with the reasons mentioned in it.

3. The purchase returns book is updated on the basis of the debit


note. (In case of return of goods)

4. It is often used to return goods on credit.

5. A debit note is generally prepared like a regular invoice and shows a


positive amount.

6. Journal entry to record a debit note in the books of seller

Sales Returns A/C Debit

To Debtor’s A/C Credit


Sample Format of a Debit Note
Credit Note
1. When a Seller receives goods (returned) from the buyer, he prepares
and sends a credit note as an intimation to the buyer showing that the
money for the related goods is being returned in the form of a credit note.

2. A credit note is sent to inform about the credit made in the account of the
buyer along with the reasons mentioned in it.

3. The sales return book is updated on the basis of the credit note. (In
case of return of goods)

4. It is generally sent by the seller if the goods are found incomplete,


damaged or incorrect.

5. A credit note generally shows a negative amount.

6. Journal entry to record a credit note in the books of buyer

Creditor’s A/C Debit

To Goods Returned A/C Credit

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