Debit notes are useful for businesses. It can be used in certain ways in which the invoice cannot function. As a source document, this note is known to correct price and quantity errors in the invoice. But that's not all! A Debit note can serve as an instruction or request for payment.
A. Definition
A Debit note is a source document used for notifying a buyer of the debt owed. It can also be sent to a seller by the buyer when he or she returns all or part of the goods earlier purchased. In addition, debit notes are mostly known for their usefulness in the correction of undercharged or under-billed goods.
In this case, the seller is instructing the buyer that his/her debts are higher than what was stated on the invoice. When this note is issued, it carries a debit entry on a journal book. There is no specific format for a debit note. However, it must contain the name of the business issuing it, the date it was issued, the quantity and price of the goods invoiced, and the reasons for the issue.
B. Five Uses of Debit Note
1. Notification of debt
A vendor can use a debit note to request payment of a previous invoice sent to customers. This request is different from that of a proforma invoice whose goal is to remind the buyer of its debt. Here, the seller is passing on information about the urgency of the payment.
2. Correction of invoice price
When an invoice was undercharged or under-billed by the supplier, he will need to send additional billing. This is done through this note.
3. Instruction for payment for items other than normal business
When a business earns income from other sources other than its normal business. Such as through rental income, it can decide to issue a debit note to the client.
4. Used when goods are returned
When goods are returned by a buyer to a seller, it is normal for the buyer to issue a debit note as a source document to the seller. This is to alert the supplier that the invoice price of the goods should be reduced. Some reasons why a buyer may return goods to the seller are damaged goods and goods not meeting specifications.
C. Journal entries for debit notes
A debit note usually triggers a debit entry in the books of accounts. When the debit note is issued by the seller, the account receivables in the seller's book are debited. Also, when the note is issued by the buyer, the account payable in the book of the buyer is debited.
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