5 mistakes to avoid while generating debit notes

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What is a debit note?

When previously issued invoices need changes due to different complications that arise in between transactions, debit notes come to the rescue. After implementation of the GST law in the year 2016 by the Government of India, it had been stated that once an invoice is issued it cannot be deleted, edited or rectified by any means. Therefore, whenever a situation arises where there is a need for rectification in the invoice, debit notes or credit notes are issued against the invoice to keep the financial record balanced and intact for the two or more parties who are indulged in the transaction process.

Due to reasons like the return of the commodities and services, various errors in the invoice, damaged goods and products, purchase cancellation or any frantic circumstances a debit note can be issued by the buyer against the issued invoice. The only difference between a debit note and a credit note is that a debit note is issued by a buyer whereas a credit note is issued by a seller. A debit note is a sort of a request from the buyer to the seller for returning the amount of money equivalent to the disputed amount or the number of goods returned.

Debit notes are mostly used in B2B transactions. This document serves as evidence against the return of the goods and commodities between the buyer and the seller so that during the end of the financial year both parties’ accounts and taxes can be balanced.

Issuing a debit note

Debit notes, also known as debit memos, can only be issued during the following circumstances:

  • When there is a sudden change in the value of the product or services.
  • When the product returned is badly damaged or of poor quality.
  • The amount payable to the seller is more than the actual amount of the commodity.
  • The amount of tax payable for the goods and services is more than the actual amount.
  • Incorrect invoice details.
  • If any other similar circumstance arises.

Mistakes while generating debit notes

Several mistakes can arise while generating debit notes. These mistakes usually happen due to buyers and sellers alike possessing less information about the GST law and its utility. Even after several years of the implementation of GST law throughout India, many businessmen and companies are still not updated enough, therefore, errors occur while doing transactions. Here we are discussing 5 common mistakes that occur while generating debit notes or debit memos

  1. Both the parties specifically need to keep track of products and services sold and received by the seller and buyer respectively. While the debit note is being issued against an invoice, it is important for the buyer to keep a track of the commodities received and the buyer should also keep a track of the products or services sold.
  2. People seldom keep the debit note on the side of the sale but it is the wrong method. What they are doing with the debit note is they are claiming the ITC, the claim is on the purchase side. The sales side accountability should be reduced. For this kind of reduction, only the seller has the authority of issuing a debit note against invoices.
  3. The seller can also issue a clarified adjustment instead of a debit note. Here the interim duplex tax does not need to be paid, therefore, the buyer is not committed to possessing the confirmation receipt.
  4. If there is any payment made before the transaction or any kind of reduction in the base price of the good.
  5. While issuing a debit note or a credit note, the seller needs to keep in mind if the VAT (Value Added Tax) is included or not.

These kinds of mistakes need to be avoided while issuing a debit note. Using accounting software can help you with your business to deal and mitigate such errors.