Debit Note Meaning

Debit note is the term used in the context of buyer and seller of goods; it refers to that note by which the buyers informs the seller that his or her account is debited in the books of accounts of the buyer, in short in case of debit note the seller becomes the creditor in the books of accounts of the buyer. It can be better understood with the help of an example suppose buyer A has purchased goods from seller B worth $50000 and out of this $500 worth of goods are found missing in the consignment than A will make a debit note of $500 and will send it to B informing him or her of the amount which A owes from B.

Debit note can be made in the following cases –

  1. When the buyer feels that he or she is overcharged by the seller than he or she can make the debit note so if the buyer has made payment of $10000 but if he or she gets to know that value of same goods in the market is $9900 then buyer will make a $100 debit note.
  2. When there is the return of goods by the buyer to the seller then also buyer will be making the debit note equal to the amount of goods returned to the seller by the buyer.
  3. It can also be made by the seller when the seller by mistake has taken less amount than market value of goods delivered to the buyer, so in the above example if instead of $10000 seller has delivered $10100 worth of goods than seller will make $100 debit note and sent it to the buyer of goods.

As one can see from the above that this instrument is a way of intimating the other party that money is owed by the party making the note and therefore person making the note will be the debtor and the person in whose favor the note is made is the creditor.

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