When should a business issue a debit note as opposed to a credit note?
I look forward to your reply.
This often causes confusion in practice and is often taught incorrectly at school level too.
A credit note is issued to a debtor that has returned previously purchased goods or services, or has requested a rebate on such purchase for various reasons – e.g. inferior goods, advertised discount never allowed at point of sale, etc.
A debit note is also issued to a debtor, but to increase the amount pertaining to a credit invoice – when such an invoice is too low in value.
A business sold goods on credit to Mr X for R 342 including 14% VAT. The invoice has been batched and posted already. The business then realises that the invoice amount should actually have been R 570 including VAT. As the law prohibits the business from issuing another invoice with a different invoice number for the same goods, the business has to issue a debit note for the difference. The debit note will be for R 228 including VAT.
Hope that helps!
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