If any amount is credited by any business firm against which no receipt is issued then Credit Note is issued. Credit note is a support document which shows that the account of the receiver of the credit note has been credited with the amount mentioned in the credit note. The Credit note is issued in following circumstances:-

  1. When the material is returned by the customer to the supplier then the credit note is issued to the customers by the supplier.
  2. The credit note can be issued by the firm for the transactions not relating to sales return. For example:- the interest payable by business firm for late payments, any special discount allowed etc.
  3. Credit note can also be issued in response to debit note received by the business firm.
  4. Credit note can be issued to the customer or supplier also if there is a mistake in sales invoice or purchase invoice.
  5. Some time for certain adjustments or transactions for which bill can not be issued in that case credit note is issued by the firm.

Contents of a Credit Note

The credit note contains the following particular:-

  • Date of credit note.
  • Serial number of credit note.
  • Name and address of the receiver.
  • Particulars or brief description of the transaction.
  • If the credit note relates to the material return then the detail of item sold, quantity, rate, sales tax and reference of invoice against which the material was sold, should be shown.
  • Amount of credit note in words and figures.
  • Signature of the concerned authorities for raising the credit notes.

 Support Documents for Credit Notes

  • Delivery challan, in case of return of material by customers.
  • Copy of purchase order or other letter in case, of rate differences.
  • Copy of cheque leave,  in case of any payment received from third party on behalf of any customer etc.
  • Any detail which can prove the happening of the transaction.

Illustration- 1(Credit Note for Return of Material by Customer)

M/s Morning Place, Green Park, Delhi returned the material to M/s XYZ Limited on 25.08.15 as per details given below:-

Cost of Material Rs.6000/=(Local Sale Taxable 5%.)

Local Sales Tax 5%  Rs.300/=

Total amount Rs.6300/=

Prepare the necessary document for above transaction by M/s XYZ Limited.

Solution:

Since the material is being returned to M/s XYZ Limited, therefore, the Credit Note shall be issued by them to M/s Morning Place as under:-

M/S XYZ LIMITED

CREDIT NOTE

Credit Note No. 11                                                                                  Date: 25.08.15
To,M/s Morning Place,New Delhi
We have credited your account with Rs.6300/= (Rupees Six Thousand Three Hundred only) on account of material returned by you as per the details given below:-

Particulars

Amount

In Rs.

Cost of Goods

6000/=

Add: Local Sales Tax 5%

300/=

Total

6300/=

Amount in words: Rupees Six Thousand Three Hundred only.
                    Manager                                                Accountant

Illustration-2

(Credit Note for Amount of Interest Payable to Customer on Their Deposit)

M/s Morning Place, New Delhi had deposited with M/s XYZ Limited Rs.100000/= as security deposit on 01.07.14 and an interest 10% per annum was supposed to be credited by M/s XYZ Limited.

Prepare a suitable document for the amount of interest payable by M/s XYZ Limited on 30.6.15?

Solution:

The interest amount shall be Rs.10000/= i.e. 10% on Rs.100000/=

The interest is to be credited in account of M/s Morning Place. Therefore, Credit Note shall be prepared by M/s XYZ Limited as under:-

M/S XYZ LIMITED

CREDIT NOTE

Credit Note No.08                                                                            Date: 30.06.15
To,M/s Morning Place,New Delhi
We have credited your account with Rs.10000/= (Rupees Ten Thousand only) as per the details given below:-

Particulars

Amount

In Rs.

Interest amount on your security deposit amount for Rs.100000/=  10% per annum from 01.07.14 to 30.06.15.

10000/=

Total

10000/=

Amount in words: Rupees Ten Thousand only.
Manager                                                Accountant

Illustration-3

(Credit Note for Special Discount Allowed to Customer)

M/s XYZ Limited credited the account of M/s Morning Place, New Delhi with Rs.7500/= on 25.08.15 towards the special discount allowed to them in respect of target of purchases achieved during financial year 2014-15 by M/s Morning Place.

Prepare a suitable document to be given by M/s XYZ Limited to M/s Morning Place.

Solution:

For the above transaction, Credit Note shall be prepared as under:-

M/S XYZ LIMITED

CREDIT NOTE

Credit Note No. 12                                                                                  Date: 25.08.15
To,M/s Morning Place,New Delhi
We have credited your account with Rs.7500/= (Rupees Seven Thousand Five Hundred only) as per the details given below:-

Particulars

Amount

In Rs.

Special discount allowed to on account of achievement of target of purchase during financial year 2014-15.

7500/=

Total

7500/=

Amount in words: Rupees Seven Thousand five Hundred only.
Manager                                                Accountant

Illustration-4

(Credit Note for Adjustments in Account)

M/s XYZ Limited credited the account of M/s Morning Place, New Delhi with Rs.20000/= on 25.08.15 towards the amount received from M/s Gift House on behalf of M/s Morning place by cheque No. 124568 dated 16.08.15 drawn on State bank of India.

Prepare a suitable document to be given by M/s XYZ Limited to M/s Morning Place?.

Solution:

For the above transaction, Credit Note shall be prepared as under:-

M/S XYZ LIMITED

CREDIT NOTE

Credit Note No. 13                                                                                 Date: 25.08.15
To,M/s Morning Place,New Delhi
We have credited your account with Rs.20000/= (Rupees Twenty Thousand only) as per the details given below:-

Particulars

Amount

In Rs.

Cheque No. 124568 dated 16.08.15 drawn on State Bank of India, received from M/s Gift House, on your behalf.

20000/=

Total

20000/=

Amount in words: Rupees Twenty Thousand only.
Manager                                                Accountant

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