Credit Note is a memo issued to the opposite party giving details of sum credited to the party's account. For example Supplier will issue a Credit Note to its Customer for the goods returned by the customer. On the other hand, Debit Note gives the details of debits. Credit Note issued by one party(supplier in the above example) is a Debit Note issued by the other party(customer in the above example). The journal entries will be as per under:-
Dear Friend, The above treatment of Debiting sales account may be incorrect. In case of sales returns, "Sales return account should be debited and not Sales account"
In case of purchase returns, "Purchase return account" account should be credited and not "Purchases a/c"
a. In case of Purchase returns, the purchaser will issue a debit note to the suppliers so that the suppliers account is debited on issue of debit note
b. This type of note can also be issued in case of overcharge by suppliers (practically)
Debit Note Example: In case of credit purchases [assume Rs.1000 worth goods], journal entry will be "Purchases Dr. and Creditor Cr." for Rs.1000. So we are crediting the account of creditor indicating that we have to pay Rs.1000 to our creditor. At the time of purchase return [say Rs.200], we have to debit the account of creditor indicating that we need not pay Rs.1000. We have to pay finally Rs.800 only.
Journal Entry: 1) Purchases a/c Dr. 1000 To Creditor a/c Dr. 1000
2) Creditor a/c Dr.200 To Purhcase Returns a/c 200
a. In case of Sales returns, the seller will issue a credit note to the purchaser
b. The purchaser account is credited on issue of credit note
Credit Note Example: In case of credit sales [assume Rs.1000 worth goods], journal entry will be "Debtors a/c Dr. and Sales a/c Cr." for Rs.1000. So we are debiting the account of customer [debtor] indicating that we have to receive Rs.1000 from our customer. At the time of sales return [say Rs.200], we have to credit the account of debtor indicating that we are not going to received Rs.1000. We have to receive finally Rs.800 only.
Journal Entry: 1) Debtor a/c Dr.1000 To Sales a/c 1000
2) Sales Return a/c Dr. 200 To Debtor a/c 200
Credit note will be from Seller point of view and Debit note from purchaser point of view