Debit Notes and Credit Notes are a part and parcel of daily transactions of any business.

In simple words, when there are Sales Returns or Purchase Returns in a business, debit and credit notes are used.

There is not a single a business who do not have any kind of need for a debit and credit notes.

Well, today you are going to learn to easily create debit and credit notes in Tally.

Why people are confused in Debit and Credit Notes

It is because they are actually quite confusing.

I was also confused when I learnt that in 11th standard but eventually got it.

So, before learning how to pass entries for debit and credit notes in Tally, let us first understand the concept behind the debit and credit note creation.

Credit and Debit Note in Tally

Concept of Debit & Credit Note

The need for debit note and credit note arises most of the time when there is a Return of Goods.

Usually when there is a return of goods, the person does not directly give the cash for the returned goods.

He issues Credit Note if he is a seller.

And the buyer issues a Debit Note for the same transaction to the seller from whom he has received credit note.

Yes, this is how it works.

Now, it may not sound confusing to you anymore. Right?

If it still sounds confusing, go ahead and read the example for utmost clarity.

Debit and Credit Note in Tally

Example of Credit and Debit Note

For a better understanding let us take a simple routine business transaction as an example. This is in simple terms is called sales returns entry in Tally or purchase returns entry in Tally.

Let’s say I SOLD goods worth ₹15,000 to Amit.

After checking the goods he did not liked the goods worth ₹5,000 and RETURNED to me.

Therefore in this case, I will not give him directly the cash because it will reduce overall sales.

Instead, I will give him credit worth ₹5,000 to him using which Amit can buy anything from me to the extent of Rs.5,000 without paying me anything in future.

The document that I will give him as a proof to buy anything up to ₹5,000 without paying a single rupee is in fact the Credit Note.

This is the real concept of a credit note. So what is a debit note? Well, it is exact opposite of a credit note.

Let us continue with this example to understand the concept of a debit note.

Debit Note

As I issued a Credit Note, at the same time Amit will issue Debit Note to me for the same transaction.

Amit has returned goods worth ₹5,000 to me and he will issue a debit note for that amount.

Therefore Amit will show debit balance (Debit = Assets) of me in his books.

This is because Amit has already paid for the goods, but has returned some of them.

On the other hand, I will show credit balance (Credit = Liabilities) of Amit in my books.

The reason for credit balance is because I have received the goods in return as well as money for that goods from Amit.

So, now I am liable to pay the money or goods to Amit.

This is the real crux behind debit and credit note.

Debit and Credit Notes in Tally

For using debit and credit notes in Tally, you would have enable them.

To enable the option for debit and credit notes in Tally, follow the steps below.

  • From Gateway of Tally, press F11 – Shortcut for Company Features
  • Now select, Accounting Features.
  • Under Invoicing, set the option Use debit/credit notes to YES.
  • Also set YES for:
    • Use invoice mode for credit notes
    • Use invoice mode for debit notes
Enabling Debit and Credit Notes in Tally

Enabling Debit and Credit Notes in Tally

At the end…

I have already explained entries for Purchases and Sales in one of the previous posts.

This is the continued post and the video of that post because after sales and purchases, sales and purchase returns happen.

And therefore, the need for Debit and Credit Note arises.

See the video now and you will understand easily how to create debit note and credit note entries in Tally.

I have explained the creation of Debit Note and Credit Note in Tally in the video.

Have you used debit and credit notes in Tally prior to watching this video?