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Debit Note Vs Credit Note

The document explains the roles of debit and credit notes in the Procure-to-Pay (P2P) process, highlighting their importance in adjusting purchase transactions for accurate accounting. A Debit Note is issued by the buyer to reduce payable amounts, while a Credit Note is issued by the seller to acknowledge this reduction. The document also includes examples and journal entries for both buyers and sellers to illustrate the process.

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bmahesh1810
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734 views9 pages

Debit Note Vs Credit Note

The document explains the roles of debit and credit notes in the Procure-to-Pay (P2P) process, highlighting their importance in adjusting purchase transactions for accurate accounting. A Debit Note is issued by the buyer to reduce payable amounts, while a Credit Note is issued by the seller to acknowledge this reduction. The document also includes examples and journal entries for both buyers and sellers to illustrate the process.

Uploaded by

bmahesh1810
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd

1/9

UNDERSTANDING
DEBIT NOTE &
CREDIT NOTE IN
P2P

Vyshakh MS
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2/9

WHAT ARE DEBIT & CREDIT


NOTES?
In the Procure-to-Pay (P2P) process, debit and credit
notes help adjust purchase transactions. They reflect
changes in quantity, price, or return of
goods/services. These documents ensure accurate
accounting and transparency between buyer and
seller.

Debit Note is issued by the buyer to reduce


payable amount
.
Credit Note is issued by the seller to
acknowledge the reduction.

Both serve as evidence of correction in the


original invoice.

Vyshakh MS
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3/9

WHEN IS A DEBIT NOTE ISSUED?


A Debit Note is issued by the buyer when they return
goods or receive less quantity/quality. It means the
buyer wants to reduce their liability.

Issued when goods are returned or overbilled.

Acts as a formal request to reduce the invoice


amount.

Impacts accounts payable balance and


inventory.

Vyshakh MS
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4/9

WHEN IS A CREDIT NOTE


ISSUED?
A Credit Note is issued by the supplier
acknowledging the return or overcharge. It reduces
the seller’s receivable.
Acknowledges the buyer’s debit note or initiates
correction.

Seller reduces income in books using the credit


note.

It's linked to the original invoice and must be


accounted.

Vyshakh MS
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5/9

REAL-LIFE EXAMPLE – GOODS


RETURN
Imagine your company ordered 100 chairs worth
₹1,000 each, but received only 90. You issue a Debit
Note for 10 chairs = 10,000. The supplier then issues a
Credit Note.

Buyer reduces liability by 10,000 in books.

Supplier reduces revenue by 10,000.

This ensures books match actual goods


received.

Vyshakh MS
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6/9

JOURNAL ENTRY IN BUYER’S


BOOKS
After issuing a Debit Note:
Transaction: Buyer returns goods worth 10,000.

Accounts Payable A/c Dr 10,000


To Purchase Return A/c 10,000

This reverses the purchase amount in liability


and records return.

Vyshakh MS
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7/9

JOURNAL ENTRY IN SELLER’S


BOOKS
After issuing a Credit Note:
Transaction: Seller acknowledges return of 10,000.

Sales Return A/c Dr 10,000


To Accounts Receivable A/c 10,000

This reduces income and receivable from the


buyer.

Vyshakh MS
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8/9

CHEAT SHEET TABLE

Credit Note
Basis Debit Note (Buyer)
(Seller)

Reduce amount Reduce amount


Purpose
payable receivable

Initiated by Buyer Seller

Journal Entry
Accounts Payable Sales Return
(Dr)

Journal Entry Accounts


Purchase Return
(Cr) Receivable

Linked To Purchase Invoice Sales Invoice

Vyshakh MS
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9/9

TEST YOUR KNOWLEDGE


You ordered goods worth 50,000. 5,000 worth is
damaged and returned. What’s the journal entry in
your (buyer’s) books?

Vyshakh MS
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