Difference Between Debit and Credit Note

The difference between debit and credit note is explained as follows:

Debit Note: When goods are received from the supplier, the Supplier account is credited. When goods are returned from him the supplier account is debited, so in case of purchase returns a debit note is prepared. It should contain all the details of purchase returns. Generally a debit note will be made in duplicate, one copy will be sent to the customer and other will be kept as office copy. Credit Note: It is a statement sent by the seller to his customer intimating that, his account has been credited with the amount of goods return by him or any other allowances granted to him.

1. Meaning

Debit noteis a note sent by one party to another informing him that his account is debited in the sender's book.Credit noteis a note sent by one party to another informing him that his account is credited in the sender's book.

2. Details

Debit note contains details as to why the party is debited and the amount of debit.Credit note gives details as to why the party is credited and the amount of credit.

3. Acknowledgement

Debit note requires an acknowledgement from the receiver by a credit note.Credit note requires an acknowledgement from the receiver by a debit note.

4. Written in which Ink?

Debit note is usually typed or written inblueink.Credit note is usually typed or written inredink.

5. When Note is Sent?

When Debit Note is sent?1. Debit note can be sent by buyer when he is overcharged.2. It can be sent by buyer when he returns back the goods.3. It can be sent by the seller when he has undercharged the buyer.When Credit Note is sent?1. Credit note can be sent by the seller when he has overcharged the buyer.2. It can be sent by the seller when he receives back the goods.3. It can be sent by buyer when he has been undercharged.

6. Effect of Note

The effect of a debit note is that the debit account gets more debited and credit account gets reduced.The effect of a credit note is that the credit account gets more credited and debit account gets reduced.

------------------------------------------------------------What is the double entry system?Thedouble entrysystem of accounting orbookkeepingmeans that every business transaction will involve two accounts (or more). For example, when a company borrows money from its bank, the company's Cash account will increase and its liability account Loans Payable will increase. If a company pays $200 for an advertisement, its Cash account will decrease and its account Advertising Expense will increase.

Double entry also allows for theaccounting equation(assets = liabilities + owner's equity) to always be in balance. In our example involving Advertising Expense, the accounting equation remained in balance because expenses causeowner's equityto decrease. In that example, the asset Cash decreased and the owner's capital account within owner's equity also decreased.Importance And Advantages Of Double-entry Book-keepingThe following are the main advantages of double-entry book-keeping:

1. ScientificThe double-entry book-keeping system is a scientific system of book-keeping. Double-entry system has its own set of principles and rules. Under those principles and rules, two aspects of every financial transaction are recorded.

2. SystematicA systematic technique is followed in recording financial transaction in double-entry book-keeping system. It records financial transactions in a systematic and chronological order with suitable narration of the financial transaction.

3. CompleteDouble-entry system is a complete system of book-keeping. It records not only each and every financial transaction, but also each aspect of the transaction.

4. AccuracyDouble-entry book-keeping system is based on the double-entry principle which means ' for every debit amount there is a corresponding credit amount'. Such a method of debit and credit can help ensure arithmetical accuracy of the recordings of financial transactions.

5. Profit Or LossDouble-entry book-keeping system helps to ascertain the true profit or loss of a business by preparing the profit and loss account for a given period.

6. Financial PositionDouble-entry book-keeping system also helps to reveal information about the financial position of the business by preparing a statement called balance sheet.

7. ControlDouble-entry book-keeping system keeps a detailed record of financial transactions. Therefore, the recording of financial transactions in books provides necessary information for the purpose of costs control.

8. Decision MakingDouble-entry book-keeping system communicates financial information that is necessary for taking decisions by a business. Double-entry book-keeping system also provides necessary information to different users such as owners, managers and creditors for their decision making purposes.

Difference between cash discount and trade discount

Trade DiscountTrade discounts are generally ignored for accounting purposes in that they are omitted from accounting records.Therefore, purchases, along with any payables in the case of a credit purchase, are recorded net of any trade discounts offered.- See more at:

Cash DiscountCash discounts result in the reduction of purchase costs during the period. However, not all purchases may qualify for the cash discount. It is therefore necessary to record the initial purchase at the gross amount (after deducting any trade discounts though!) and subsequently decreasing purchases by the amount of discount that is actually received.

First

Trade discount is issued by deduction in list price.

Cash discount is issued by deduction in payable amount ofdebtors.

Second

Trade discount is given with the aim to purchase at high quantity.

Cash discount is given with the aim to get payment fastly and before payment date .

Third

Trade discount is shown as deduction in Invoice.

Cash Discount is not shown as deduction in Invoice.

Fourth

There is no any accounting treatment for trade discount.

There isaccounting treatment for cash discountboth in vendor and buyers day book.

Fifth

Trade discount is related to quantity of the goods purchased.

Cash Discount is related to the amount of payment but not to quantity of goods.

Sixth

There is no need to give cash discount with trade discount.

If seller has given trade discount, cash discount can be given after trade discount.