Debit Memo Vs Credit Memo

Debit Memo Vs Credit Memo

In the present business culture, the estimation of debit and credit notes is unmatched. Since each independent business turns out to be enormous instantly, it's reasonable to understand these notes clearly. 

Prior to getting into the transactions, Let's see what are Debit Memos vs Credit Memos. 

Debit Memo 

A debit memo refers to an amount of deducted from financial balances. In other importance, a check is written and placed in bank accounts to a similar impact on accounts. 

A Debit Memo or Debit Note is the transaction that reduces the Accounts Payable amount as you have restored a few merchandise to your Vendor(s). It is given by a purchaser or Customer to a seller or Vendor. It acts as a source report for the Purchase Return Journal. 

Credit Memo 

 

A credit memo is expressed as a credit memorandum when a contributor's withdrawal from his bank accounts by a check for a specific transaction. 

 

A Credit Memo, or Credit Note, is the exchange that decreases the Accounts Receivable, as your customer has restored a few products to you. It goes about as a source document for the Sales Return Journal. A credit memo can be given in various cases, for illustration, if the cash discount isn't considered in the last receipt or if the incorrect cost is utilized in the receipt. A credit memo can be assigned to open invoice in SD 

 

Example

Accept there is an association with the name "Seller Inc.," and it offers results worth 1000 INR to its customers with the association name "Purchaser Inc.,." 

-For this situation, Seller Inc., will give a Sales Invoice of 1000 INR to Purchaser Inc.,

Dr. Accounts Receivable:              Purchaser Inc 1000 INR 

Cr.                                                     Income from sales 1000 INR 

-After getting the product the purchaser establishes that one of the products delivered is harmed and informs Seller Inc. about it. Seller Inc. concurs and gives a credit update or 100INR to Purchaser Inc. 

Dr.                                                    Deals Return 100 INR 

Cr. Accounts Receivable:              Purchaser Inc 100 INR 

At the end of the day, the Credit Memo lessens the net receivables and net sales of Seller Inc. 

-On accepting the Credit reminder from Seller Inc., Purchaser Inc. records a Debit reminder in his accounting books. 

Dr. Accounts Payable:                    Buyer Pvt Ltd 100 INR 

Cr.                                                      Purchase Return 100 INR 

At the end of the day, the Debit Memo lessens the net payable of Purchaser Inc. 

What is the motivation behind the Debit Memo vs Credit Memo? How would we make it? 

 

An exchange that decreases Amounts Receivable from a customer is a credit reminder. For eg. The customer could restore damaged products. A debit memo is an exchange that reduces Amounts Payable to a vendor since; you send damaged merchandise back to your vendor. 

 

A credit memo request may be a sales document utilized in complaints preparing to demand a credit memo for a customer. In the event that the cost determined for the customer is excessively high, for example, because the wrong scale prices were utilized or a discount was failed to remember, you can make a credit memo demand. The credit memo demand is blocked for additional handling so it tends to be checked. On the off chance that the request is affirmed, you can eliminate the block. The framework utilizes the credit memo request to make a credit memo.

 

A debit memo demand is a sales document used in complaints processing to request a debit memo for a customer. In the event that the costs determined for the customer were excessively low, for example, determined with some unacceptable scaled costs, you can make a debit memo demand. The debit memo request can be hindered with the goal that it very well may be checked. At the point when it has been approved, you can eliminate the block. It resembles a standard request. The framework uses the debit memo request to make a debit memo. 

 

You can utilize credit notices in Sales and Distribution (SD) for delegating credit memo requests to the open invoices and in Financial Accounting (FI) for allocating credit notices and payments to the open invoices and complete clearing with them. On the off chance that you simply utilize both Financial Accounting (FI) and Sales and Distribution (SD), there’s a 1:1 association between the credit update item and therefore the credit notice thing posted in Financial Accounting (FI). When you charge the credit memo to demand along with different sales orders or appropriate the things of one credit memo request to a few charging documents, the task is no longer valid, and the framework won't handle it.

 

Both Credit and Debit Memo is conceivable in Accounts Payable 

 

You can bring a debit memo in the accompanying reasons to the distributor 

  • Materials Rejection 
  • Reduce the Purchase Charges, for example, tax, carriage, etc. 
  • Quality of the material or delay in the supply of materials, caused to stop the creation line. 
  • You can bring the credit memo in the accompanying reasons to the distributor
  • Increase in the Purchase Charges 
  • Late payment or cheque bounce charges

 

Here in Payables the contrast among CR and DR memo is of initiation i.e. a Credit Memo is given by the supplier if it finds any discrepancy within the amount invoiced and debit notice is given by the customer if they identify any discrepancy.

Debit Memo: A negative change in invoiced amount distinguished by customer and sent to supplier.

Credit Memo: A negative change in invoiced amount distinguished by supplier and sent to customer

Proceeding onward,

There are two potential situation in Payables for entering a CR or DR memo

  1. The invoice is paid
  2. The invoice is not paid

In the first situation where invoice was overcharged and has been paid to the supplier; a CR/DR memo will make a Refund i.e. receiving an amount in the bank.

In the second situation where the invoice is overcharged however open or not paid; a CR/DR reminder will diminish the payment amount.

Here are the steps for entering the invoice for Situation 1 

-Make an invoice in the event that you need to test this scenario, suppose invoice number INV-001 with amount 15000/ - 

-Make a CR/DR memo for a similar provider in INV-001 

-Give it a number say INV-001DR1 with the amount - 3000/ - 

-Look over the invoice header segment to the Match the Action column and select "invoice" starting from the drop. 

-Try not to give the Invoice Line or Distribution amount. 

-Click on the Corrections button. 

-Enter invoice number to be corrected for example INV-001 and click Find. 

-Click on Select and enter the amount to be corrected say - 2000 or the aggregate amount  3000. 

-Click Correct. 

-With this, the Invoice Line and Distributions will be imitated to CR/DR notice with the individual correction in Distribution lines. 

-Presently perform the validation. 

-Make Accounting is optional. 

-Presently pay the CR/DR update; you can utilize the Pay in Full choice or the Payment window. 

-Select the bank account in which you are getting the discount from the provider. 

-Enter the check number, which is utilized by the provider to pay the refund amount. 

-Save the Transaction. 

The accounting for this situation will debit your bank account and Credit the Liability.

Here are the steps for entering the transaction in Situation 2 

 

-The Invoice for this situation will likewise be made as of now. 

 

-Enter the CR/DR memo with the reduction amount. 

 

-Go to the payment window. 

 

-Select the Supplier and each other's details. 

 

-Select the financial account and report number you are paying from. 

 

-Click Enter/Adjust Invoice and select the Standard Invoice for which the amount should be decreased in the first line and the CD/DR memo in the following line. You will find that the total will be reduced with your payment amount. 



-Save the transaction.

 

Key Differences Between Debit Memorandum Vs Credit Memorandum

- The purchaser as a rule gives a debit note, and the seller typically gives a credit note. However, a debit note can be given by the seller when the purchaser incorrectly records more, and the later can likewise be given by the purchaser when the seller undercharges the purchaser. 

- The debit note is set up in blue ink since it shows a positive amount. The latter is set up in red ink since it shows a negative amount. 

- A debit note is given in light of the fact that the buyer needs to express that he is cheated, or there is a level of defective products remembered in his purchase. A credit note, then again, is given in return to the debit note expressing that the seller would acknowledge the purchaser for the amount which was found inadequate or which was cheated. 

- The debit note doesn't just influence the purchase return account back. It might likewise reduce the purchase amount for the mistake of cheating. A credit note likewise doesn't influence just the sales return account. A credit note can likewise be given for incorrectly overcharging. 

- A debit note is given distinctly on account of credit purchase, and the other one is given uniquely on account of the credit sale.

Comparative Table

Reason for Comparison 

Debit Note

Credit Note

Which Means

It is the enunciated type of purchase returns of the seller and suggesting the explanation for it.

A credit note is a comparable articulated type of sales return and educating that the purchase return is being acknowledged.

Another type of 

Purchase returns of goods. 

Sales returns of goods

Sent by

The purchaser of goods who discovered at least one disparities/defects in the products. 

Sales group who have sold off the goods 



Accounting Section

In the purchaser's record, the provider account is charged, and the purchase return is credited. 

In the seller's record, the business return account is charged, and the client account is credited. 

Result

The purchase account is diminished. 

The sales account is diminished.

Ink Utilized

Blue Ink

Red Ink

Entry in

Purchase restores the book (generally)

Sales restores book (generally)



Final Thoughts

 

Understanding both credit note and debit note is significant for any business in light of the fact that, at different occasions, you may have to give each of these. While giving a debit note or credit note, one thing you should recollect that you can't give a note just like that. You should do your due tirelessness, see through the products yourself, and afterward observe whether there's some other option. 

For instance, while giving a credit note return to debit note, numerous sellers issue credit notes expressing that the amount for which the debit note is given can be utilized by replacing the products without restoring the amount. In the event that you understand this well, a ton of issues of business will tackle, build extraordinary relationships with your partners and different organizations, and you would likewise flourish as a business.

 

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