Credit Note definition in terms of Recording of Transactions - QS Study
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Credit Note is a tool used to notify that the other party’s account is credited in his books. It encloses the date on which goods are returned, name of the client, details of the goods received back, amount of such goods and reasons for returning the goods. Debit Note is issued by the buyer, at the time of returning the goods to the vendor, and the vendor issues a Credit Note to notify that he/she has received the returned goods. Each credit note is in sequence numbered. A replica copy of the credit note is retained for the record function. On the source of credit note, the customer’s account is credited in the books.

Credit notes are issued when there is a descending revision in prices of goods or services supplied. It can be compared to a negative invoice that has the ability to invalidate the effects of an invoice. It offers a decrease in the value of the invoice and thus, reduces the accountability of the buyer. It is often inflicted with a return of goods to the supplier. It always has a negative impact on the accounting balance in the books of the seller.

Few Characteristics of a Credit Note

  • A credit note is sent to inform about the credit made in the account of the buyer along with the reasons mentioned in it.
  • The sales return book is updated on the basis of the credit note.
  • It is generally sent by the seller if the goods are found unfinished, damaged or inaccurate.
  • A credit note usually shows a negative amount.