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What is a Debit Note? Meaning, Benefits and Template

Updated on: Sep 9th, 2024

7 min read

A debit note is a concept that might sound complex and leave you scratching your head. However, nothing to worry about! In this article, we have explained the concept of a debit note in easy-to-understand language for everyone. So, if you want to know more about what a debit note is, when it is used and how it can benefit you, read on!

Debit Note meaning

A debit note is a financial and tax document used to correct or adjust the original invoice issued for the sale of goods or services. It is commonly used when the seller needs to increase the value and tax charged on a previous transaction. Similarly, it can be used by the buyer to adjust the amount payable to the seller in case of a return of goods or services.

Purpose of Debit Note

They can be issued for several reasons including -

Price adjustment - A debit note can be used to recover the increase in the agreed price of goods or services.
Goods return - If goods or services are defective, the debit note can be issued by the customer to recover the amount paid for the invoice.
Tax adjustments - Debit notes can be used to rectify an error in the tax rate or calculations.

Examples of Debit Note.

Example 1 - Returns by a customer -
PQR purchased chairs worth 50,000 from a seller ABC. After receiving it, PQR found that 5 chairs valued at 10,000 were defective. PQR is not required to pay 10,000 to ABC for those defective chairs. PQR will have to reduce the liability standing in his books as payment due to creditor ABC. Therefore, PQR issued a debit note of 10,000 to ABC and reduced the account of ABC in his books by 10,000.

Example 2 - Difference in the price charged by the seller -
ABC owns a mobile company and supplies 101 mobile phones to its customer XYZ. It was later identified that the invoice was issued to XYZ for only 100 mobile pieces. ABC can now use the debit note to recover the amount for the balance of 1 mobile piece.

Benefits of Debit Note.

You might be thinking, "Can't we just rectify the mistake without using the debit notes?" You may do it but that will not provide you with the following advantages -

Legal document - Debit notes are proof that both parties agreed to the correction. This helps in providing legal protection in case of any dispute.
Fraud detection - Debit notes can help in fraud detection between sales booked and payments received.
Tax compliances - Debit notes help in ensuring accurate reporting and payment of taxes.

Debit note vs credit note

While debit notes increase the value of an invoice, a credit note reduces the value of an invoice. Similarly, in case of purchase returns, to cancel the invoice, the seller may issue a credit note or the buyer may issue a debit note.

Debit Note Template

Some of the key inclusions in a debit note are -

Name, address, contact details, and Tax Identification Number (TIN) of the supplier.
Unique number of debit notes.
Date of issue of debit note.
Name, address, contact details, and TIN of the recipient.
Invoice reference number and date against which debit note is issued.
Details of the goods or services such as quantity, per unit amount, total amount excluding tax.
Rate of tax and tax Amount.
Signature.

Debit Note
Debit Note From Contact Person: Email: Contact No.:			Debit note to: Email: Contact No.: TIN: Place of Supply:		Shipping to: TIN:
Debit Note Details
Debit Note No.: Invoice No.: Payment Date:				Debit Note Date: Invoice Date:
#	Description	HSN/SAC Code	Quantity	Unit	Rate	Taxable Amount	Total




Debit Note Amount				Total (before tax):
				Tax		Cess

				Total Tax: Total (after tax): Grand Total:
Terms and Conditions:
				Authorised Signatory

What is a Debit Note in Accounting?

In accounting, a debit note is like a "We made a mistake" note. It is used to make corrections in invoices in the accounting records. In other words, for a seller, debit notes increase the accounts receivable in the books of the seller. Similarly, a debit note issued by a customer reduces the accounts payable in their books.

Thus, debit notes are an accounting tool that ensures the accuracy of the books and the correct reflection of the business transactions.

So, if you are running a shop, a store or simply operating any business, having knowledge of debit notes can make managing money and accounts a lot easier. They are useful for anyone who wants to keep their records clear and compliant with laws. So, next time you make a mistake, you know there's a way to fix it.