What is a Debit Note?

A debit note is a document a seller uses to remind a buyer of existing debt or one that a buyer creates when returning goods lent to them. It might mention a quick payment or serve as a reminder for money that’s currently due.

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Understanding Debit Note

A debit memo is another name for a debit note, a common payment method in business-to-business transactions.

Debit notes are not as severe as an invoice, but it’s a gentle reminder that you have some outstanding payments. Real assets may be exchanged during a business transaction, but no real money changes hands until an invoice is given.

It is a document that is used to make changes in the previously issued invoices. The changes may be required for various reasons like errors in the invoice, excess goods supplied, goods returned due to defects, or other reasons.

This note can be treated as a credit note with the major difference being that a debit note is issued by the buyer, whereas the credit note is issued by the supplier. It can be issued by the buyer to their seller to indicate or request a return of funds due to damaged, incorrect goods, purchase cancellations, or any last-minute specified circumstances.

Alternate Forms of Debit Notes

Debit notes can be in letter format or shipping receipts with received goods. It can also be sent as a postcard containing details on paying the debt and pertinent contact information.

Difference Between Credit Note and Debit Note

Aspect	Credit Note	Debit Note
Definition	Issued to record money owed to a client.	Issued to record money a client owes to the issuer.
Usage	Used when sales return occurs, decreasing payables.	Used when purchase return occurs, decreasing receivables.
Issuer	Typically issued by the supplier.	Typically issued by the buyer.
Impact	Reduces the amount owed by the client to the supplier.	Increases the amount owed by the client to the issuer.
Example	Refund for returned goods or overcharged invoice.	Payment adjustment for damaged goods or additional purchases.

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Debit Note Examples

Let’s say, Master & Sons has purchased goods worth Rs. 2,00,000 from Kala Roopam Wholesalers and Retailers. Masters & Sons find out that 2% of the total goods purchased are damaged or defective, not fit to sell. At this point, Masters & Sons will issue a debit note in their books of accounts.

Purchase A/C… Dr 2,00,000
To Kala Roopman Wholesalers and Retailers A/C… 2,00,000

Since 2% of the goods are defective, the debit note entry will then be:
Kala Roopman Wholesalers and Retailers A/C… Dr 4,000
To Purchase A/C 4,000
Purchase A/C… Dr 4,000
To Purchase Return A/C 4,000

2% of INR 2,00,000 is Rs. 4,000. Doing this will create the right effect in ledgers, and as a result, the business will be able to enter a similar impact on the final accounts and balance sheet as well.

When Debit Note is Issued

When the value of goods changes after delivery due to damaged goods, returns, or quality issues.
When the payable amount increases due to incorrect invoice value or additional purchases.

According to GST law, it can be issued under two circumstances:

If the tax on goods or services changes after the invoice.
If the taxable value of goods or services changes after the invoice.

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Debit Note Format

A debit note format can be made on MS Excel, Word, PDF, or even on smartphones. Ensure to follow GST guidelines. Key details to include are:

Header: Mention "Debit Note."
Serial Number: Unique, up to 16 characters.
Date: When the debit note is issued.
Invoice Details: Add reference invoice number and date.
Supplier Details: Name, address, and GST number.
Contact Details: Supplier contact details and GSTIN.
Amount: Taxable value, tax rate, and tax amount.
Verification: Signature or digital signature of the supplier.

Debit Note in GST

Scenarios when the supplier issues a debit note:

Taxable value in the invoice is lesser than the actual value.
Tax charged in the invoice is less than the actual tax payable.

Debit notes can be integrated with outward supplies for tax liability adjustments.

FAQs on Debit Note

Who can issue debit notes?
Only registered buyers under GST.
When can a debit note be issued?
Anytime in the financial year.
Do debit notes need separate tax filing?
No, they can be integrated with outward supplies.
Difference between a debit and credit note?
A debit note is issued by the buyer, while a credit note is by the supplier.
Are debit notes and invoices the same?
No, debit notes are reminders of debt obligations.