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Frequently asked question on Debit Note and Credit Note

Today we are going to discuss to a simple but a confusing topic Debit Note & Credit Note. Most of people knows what is debit note & what is credit note but most of times they get confused while passing a journal entry relating to debit note & credit note.

In this blog we will discuss the meaning of debit and credit note and entry to be passed in the debit and credit note.

Meaning of Debit Note and Credit Note:

A debit note is a document issued by purchaser to seller indicating that the account of seller is debited due to Purchase return , rate difference , quantity difference or trade discount. In response to that seller also issues Credit note indicating that the account of purchaser is credited with the same amount.

An document issued by a seller to advise the amount owed by the buyer this type of instrument or document  is known as debit note.

We can understand the above provision with the help of example:

X Purchases goods from  Y Worth Rs. 10,000/-.  The entries passed are as follows:

In Books of X

Purchase   A/c.   Dr.        10,000

To  Y A/c.              10,000

By passing this entry the account of Y get Credited means X have to pay money to Y. Here Y is Creditor.

In Books of  Y

X A/c.  Dr.          10,000

To  Sales   A/c.              10,000

By passing this entry the account of X get debited means Y is going to get money from X. Here X is debtor.

After some time X Return the goods worth Rs. 2,000/-. In this situation X will issue a Debit Note to Y. In response to that Y will issue a Credit note to X. Following entries are passed:

In Books of X

Y A/c.  Dr.      2,000

To  Purchase Return  A/c.  2,000

X will pass the above entry saying that whenever I made purchase from you I have credited your account but by issuing debit note I have debited your account by returning your goods.

In Books of  Y

Sales return    A/c.  Dr.      2,000

To  X A/c.  2,000

Y will pass the above entry saying that whenever I made sales to you I have debited your account but by issuing credit note I have credited your account by receiving my goods back.

Hence, the Debit note is issued by Creditor while the Credit note is issued by Debtor. The above explain provision is the general provision used in normal situations.

Hope you will get understand. For any queries relating to this topic type your queries in comment box we are ready to solve your queries.For more updates relating to Income Tax, Sales Tax, Excise Duty, Service Tax & Accounting stay connected to www.taxbaniya.com.

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