Debit Note
When products are returned to a supplier for reasons such as damage, defects, or incorrect delivery, the buyer issues a debit note. It acts as evidence of the return and a formal request to lower the amount owed. By demonstrating that the buyer has debited the supplier's account for the returned goods, the debit note modifies the accounts. It supports the preservation of accuracy and transparency in supplier balances and purchase records.
When a customer returns items to a supplier, they typically use a debit note for the following reasons:
The products were flawed or damaged.
They delivered the incorrect amount.
They weren't what was ordered.
The cost was more than what was agreed upon.
In addition to returning the items, the buyer also sends the seller this official document, known as a debit note, informing them of:
"These items have been returned, and the amount we owe you has been adjusted accordingly."
1. How It Works in Accounting?
Sending a debit note reduces the amount you owe the supplier by debiting your accounts payable, which is an entry you make in your books. The supplier (seller), on the other hand, will receive this note and make the necessary adjustments to their records by lowering their revenue or accounts receivable.
2. How to Make a Debit Note
The user can make a Debit Note against the Purchase Invoice or they can directly make Debit Note from the Purchase Invoice without reference.
Go to the Purchase Invoice against which you want to issue a debit note.
Click Create > Return / Debit Note.
ERPNext will directly pick up the supplier and item details from that invoice.
If you have already paid for the invoice in full or part, first create a Payment Entry for it.
Then, save and submit the Debit Note.
Because you are returning the goods to the supplier, the system automatically marks the invoice as a return after you click Save and Submit. The fact that the "Is Return (Debit Note)" checkbox is checked indicates that this is a debit note rather than a standard purchase invoice.
2.1 How Does It Impact the Ledger?
In your accounting records, a debit note is used to undo the impact of the original purchase invoice. The quantities and amounts listed on the original invoice are deducted when goods are returned to the supplier. This guarantees that your expenses and stock levels are adjusted appropriately. Consequently, the updated financial position is accurately reflected in your ledger balances.
2.2 What If No Payment Was Issued?
You can easily cancel the purchase invoice if you wish to return the items and payment has not yet been received. However, cancelling the entire invoice is not the best course of action if only a portion of the goods—for instance, five out of ten items—are being returned. A debit note is preferable in these situations since it enables precise account adjustments without nullifying the entire invoice.
For instance:
Assume you paid Rs. 2,400 + tax for cotton from Summit Traders Ltd. You decided to return the items because you discovered they were flawed when they were delivered.
You issue a debit note for the amount of the returned goods rather than cancelling the entire invoice, especially if only a portion of the goods were returned.
A debit note against the original purchase invoice can be made in ERPNext. To make sure your ledger and cash/bank accounts accurately reflect the return, you can also link the payment with a Payment Entry if it has already been made.
This maintains your accounts accurate, clean, and in line with real business operations.
3. Key Uses of a Debit Note
Track Returns: It keeps a record of items sent back to suppliers, which helps during audits or reconciliation.
Financial Adjustments: It ensures that your accounting system reflects accurate outstanding amounts.
Proof of Communication: Acts as a formal document to show that the supplier has been informed about the return.
Supports Credit Notes: Often, after receiving a Debit Note, the seller issues a Credit Note as confirmation and adjustment on their end.