When a seller receives goods returned by the buyer which were once sold on credit the seller also expects some form of confirmation from the buyer (on paper) related to the details of returned items. A debit note is a document sent by a buyer to the seller to confirm the details of goods returned (return outwards) and create an obligation for the seller to cancel the related dues.
It reduces the amount due to be paid back to the seller if the amount due is nil then it allows further purchases on behalf of that. The intent is to notify the seller that they’ve been debited against the goods returned.
A debit note is issued for the value of the goods returned. In some cases, sellers may send debit notes only to be treated as an invoice.
Example of Debit Note
Company-A purchases goods worth 1,00,000 from Amazon in a (business to business) transaction, however, 10,000 worth of goods were found damaged due to some reason & this was notified to Amazon at the time of actual delivery.
Company-A (buyer) issues a debit note for 10,000 in the name of Amazon (seller). This reduces the obligation of the buyer by 10,000 and is now only required to pay 90,000.
Few Characteristics of a Debit Note
1. It is sent to inform about the debit made on the account of the seller along with the reasons.
2. The purchase returns book is updated on its basis. (In case of return of goods)
3. Usual reasons range from incomplete goods received, damaged/inaccurate goods received, etc.
4. It is prepared like a regular invoice and shows a positive amount.
Related Topic – Accounts Payable Process with Journal Entries
Journal Entry for Debit Note
In the books of buyer
Goods returned by the buyer are purchase return, the impact of returning goods to the seller are;
- Current liability decreases as payables against credit purchase reduce.
- Expense decreases as credit purchases reduce.
|To Purchase Return A/C||Credit|
In the books of seller
Goods received (back) by the seller are sales return, the impact of receiving goods by the seller are;
- Revenue decreases as credit sales reduce.
- Current assets decrease as receivables against credit sales reduce.
|Sales Return A/C||Debit|
|To Debtor’s A/C||Credit|
Sample Debit Note Template
Short Quiz for Self-Evaluation
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