Intermediate

Easily Create Debit and Credit Notes in Tally

Posted on by Rishit Shah
Debit and Credit Notes in Tally
04
Mar

Debit 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.

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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.

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.

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

Creating a Credit Note in Tally

Let’s take the example which I have explained in the video itself.

I have sold goods worth ₹15,000 to Amit.

But he doesn’t like certain goods and he is returning the goods to me worth ₹5,000.

For this, I won’t give the ₹5,000 back because I am a true businessman and therefore I will issue Credit Note to Amit.

Here is what I will do it Tally.

From Gateway of Tally, I will go to Accounting Vouchers.

Accounting-Vouchers-from-Gateway-of-Tally

After I am in the Accounting Vouchers, I will go and select Credit Note.

I can select Credit Note in 2 ways. Either by clicking on it or by shortcut which is CTRL+F8.

If you are already in the Credit Note voucher than it is okay but if you are not, you can go by just pressing CTRL+F8.

After you are in the credit note voucher, the screen in Tally would look something like this.

Credit Note in Tally

Now, I will pass the entry for Credit Note of ₹5,000.

I have already passed the Sales Entry in one of the posts.

You can go there and know how to create a sales and purchase entry both.

Here is what the Sales Entry looks like in Tally.

Sales Entry in Tally

Now, here is what the Credit Note entry in Tally for ₹5,000 looks like.

Credit Note entry in Tally

I would like you to pay attention to some of the important things about the entry.

Firstly, the Current Balance shows ₹15,000 by which we can take a decision on how much the credit note should be made.

In simple words, we can easily know that the credit note would not be made up of above ₹15,000 because that is what the total sales.

Secondly, I would look at the Narration which is in the bottom left corner of the the image.

You can write the narration so that next time you see the entry, you will be able to know for what reason the goods were returned.

When you are completed with the entry, just press Yes and the Credit Note entry will be created.

Let us have a look at the sales entry as well as the credit note entry together in Profit and Loss Account in Tally.

Sales and Credit Note Comparison in Tally
Sales and Credit Note Comparison in Tally

You can clearly see that Credit Note makes a debit amount and therefore reduces our sales.

This is because, Amit has returned the goods and therefore in reality the goods have not been sold so the sales has been reduced.

Now, let us look at this example from the point of view of Amit.

Which is why we are going to pass a Debit Note entry.

Creating a Debit Note in Tally

A credit note for me is a debit note for Amit as per this example.

I have created another company in Tally called Amit so I can show you the creation of a debit note.

Know how to create a company in Tally in 5 minutes, if you don’t know how to create a company.

Firstly, I have already created the Purchase Voucher of ₹15,000 in the Amit’s company.

Have a look at the purchase entry in the image below.

Purchase entry for Debit Note in Tally
Purchase entry for Debit Note in Tally

As you can see, it is a simple purchase entry and nothing more complicated.

Now, to create a Debit Note, here are the steps.

Go to Accounting Vouchers from Gateway of Tally.

Then select Debit Note from the left had bar or simply press CTRL+F9 which is the shortcut for Debit Note.

After entering the details in the Debit Note, here is what it will look like.

Debit Note in Tally
Debit Note in Tally

Here is what a Debit Note in Tally looks like.

It is almost similar to the Credit Note but it is from the point of view of a Purchaser.

Now let us have a look at the Purchase entry as well as the Debit Note entry together in Profit and Loss account.

Purchases and Debit Note Comparison
Purchases and Debit Note Comparison

You can clearly see the credit entry for Debit Note of ₹5,000 which nullifies the effect of ₹5,000 worth of the purchases.

It looks similar to the Credit Note.

Video of 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?

Rishit Shah

I am a CA. Finalist and a big fan of Tally. I like to share knowledge and that is why I have started TallySchool.

140 thoughts on “Easily Create Debit and Credit Notes in Tally”

    • Rishit Shah says:

      Hi, Mangala!

      I am sorry but your question is not correct. 🙁

      Sales return is the reason why we create a credit note and the same is the case with purchase return and credit note.

      When there is a sales return to you, you create credit note and the same is purchase return for the customer and he creates debit note.

      I know it is a bit confusing, but it is the way it is. 😉

      Reply
  5. MOHAMED SHAREEF says:

    Dear Sir,
    I have a one confusion.My tally stock is 1950,physical stock is 1915,35 pcs short one item .In the case of other item tally stock 1860 physical stock 1895,35 pcs excess.
    In this case How to clear this problem in tally.
    please cooperate me.

    MOHAMED SHAREEF

    Reply
    • Rishit Shah says:

      Hi, Mohamed!

      For stock which is short in physical quantity, you can pass an entry for writing off the stock.
      It would be:

      Stock Written Off A/c
      To Stock

      For stock which is excess in physical quantities, you can increase it in Tally by creating a purchase entry.

      Reply
  6. Smita says:

    Really…Thanks.
    For explaining credit note & debit note.Its easily understandable all kind of people.. I like your ways of teaching.

    Reply
  7. Vikas says:

    Sir,you explained debit and credit notes in the most simple and easy language. Thanks for this. In fact, there is a common quality between ‘Tally’ and ‘You’ that is the “Power of Simplicity.”

    Reply
  8. SOUMYA says:

    THERE ARE TWO PARTNERSHIP FIRM ACS & BCS. TWO PARTNERS OF ACS ARE ALSO PARTNERS IN BCS. NOW IF ACS WANTS TO TRANSFER LEDGER ACCOUNT OF A DEBTOR WHO HAS CREDIT BALANCE TO BCS WHAT IS THE ACCOUNTING ENTRY MADE

    Reply
  11. Manish says:

    Hi very good explanation. But I saw in some videos there is option available like used for : Purchase Return or Rejected/Bad Debt Recovered/ —–/Other Adjustment etc. Even I had done in past but now forget how to get it in debit credit note. Could you please some light on it. For clarity pleases once see this vidoe.
    Debit Note Bill Wise Adjustment in Tally.ERP9

    Reply
  13. Nagaraju says:

    Sir,you explained debit and credit notes in the most simple and easy language. Thanks for this. In fact, there is a common quality between ‘Tally’ and ‘You’ that is the “Power of Simplicity.”

    Reply
  14. Rukmini says:

    Sir, how to pass entry in tally when creditor gives debit note for additional amount of packeging and forwordimg charges after original bill given.
    In this situation creditor should be increase.
    So in debit note voucher can we do this entry or not.

    Reply
  16. ali says:

    Hi, this was helpful. I am not an accountant hence i have another question.
    CLient has paid an excess amount and i have to issue credit note. I followed your steps but under client account it shows as additional amount to be paid. I mean 13000 was owed to him but it now shows 26000 after following the above. I have made the entry correctly as per your directions as the sales register shows debit entry of 13000 in the name of the client as per the screen you showed.

    Please advice if this is correct. because it should not be showing 26000 payable to client right?

    Reply
    • Rishit Shah says:

      Hi, Ali!

      If you owe client excess amount then you should pass the entry for that excess amount and not 13,000.
      By doing this you will see the exact amount you owe to the client.

      Reply
  18. Sumesh says:

    Hi,

    After the purchase return or debit note. I have received the cash from the seller. What is the entry for that.

    Regards,
    Sumesh.

    Reply
  29. Ramesh says:

    Bank reconciliation statement. Is it compulsory to make

    Bank reconciliation statement. Is it compulsory to prepare in business??
    If answer is affirmative, where can I find in Tally? In my professional experience nearly 40% of assistant accountant or senior accountant not given importance to BR s/a resulting manipulating funds eventually cheating. Just clarify in tally where it is? How to create BR s/a.

    Reply
  32. shalini says:

    this is very well explained how to issue credit note. i am into retail business . my customer wants to exchange few items which he bought previous day. i also want to know how to adjust the exchange amount with issuing credit note.and then how to adjust that credit note. pls explain.

    Reply
    • Rishit Shah says:

      Hi, Shalini!

      For that you need to go to Credit Note.
      Pass a simple credit note for the items that you have received back. That’s it.
      And, don’t forget to adjust the GST if applicable.

      Reply
  34. Suchitra Jaiswal says:

    Pls sir help me for solve following entry in tally
    1. Company purchase following goods from Ram (Pur/17-18/101) on dated 25/10/2017
    a. 85 pcs Cello Pen @ 4.
    b. 150 Pcs Rotomac Pen @ 5.
    2. Ram sent note (CN/17-18/01) for increase the rate of cello pen Rs. 2/pcs.
    I am confuse that how will pass credit note entry for increase rate in tally

    Reply
    • Rishit Shah says:

      Hi, Suchitra!
      You can calculate the total increased amount and then create a credit note. The company needs to pass a debit note since the company has to pay more now.
      The entry will be ₹190 total for 85 cello pens.

      Here is how it will be passed in Tally in the debit note voucher.
      By Ram Rs. 190
      To Purcahses A/c Rs. 190

      Reply
  37. Ram says:

    I am a b com student,, after two days I have a interview,,bt I don’t know about at tally ,,,now only I saw your tally school,,,its very good way to learn easily,, now I am cleared,,, thanks for your information….

    Reply
  38. SHIKHA says:

    dear sir pls explain me,
    this is the right OR WRONG option for OUTPUT CGST and OUTPUT SGST FOR SALES IN CREDIT NOTE. I AM CONFUSED ABOUT INPUT OR OUTPUT FOR CREDIT NOTE FOR SALES

    Reply
  40. Nirmal Nandi says:

    after passing sell return … how to commission payment to Customer on actual sold amount.. product wise commission.

    Reply
    • Rishit Shah says:

      Hi, Nirmal!

      It means you want to pay the customer back. If that is the case then there is no need to pass a credit note entry at all.

      Just delete the original sales entry because effectively there is no sales.

      Reply
  41. krishna says:

    my problem is that, how to pass entry of debit note in tally of short supply material? pls explain with example

    Reply
    • Rishit Shah says:

      Hi, Krishna!

      For example, you purchased material of ₹1,000 and you got only of ₹800.
      In this case, there will be no debit note because you got ₹200 less material under the invoice of ₹1,000.

      In fact, there will be no entry for this kind of situations. You can just ask the supplier to supply the rest of the material.

      Reply
  42. Dipen Shah says:

    How to pass entry when there is return against multiple invoices? There is only one option available while entering original invoice

    Reply
  43. Ruchir says:

    Dear Sir,
    how to pass two purchase entries with different gst rates.
    My Problem is when i create an entry of purchase invoice with gst the previous input rates are automatically changed.
    For Example:
    Particulars Rate Amount
    purchase gst 12% 5000
    input cgst 6% 6% 300
    input sgst 6% 6 % 300(at this stage my all things are fine)
    but if i put another purchase entry then previous gst input figures(300 and 300) are automatically changed)
    purchase gst 6% 1000(after putting this entry my gst input figures are changed from 300 to 360)
    i have ask from my sir but they dont know.

    Reply
    • Rishit Shah says:

      Hi, Ruchir!

      As you have put another entry in the same invoice, the amount of GST will get added and the total amount will get displayed.
      This is how Tally works.

      If you press ALT+A while you are in the voucher entry screen, you will see the full GST details and how it is calculated on each item.

      Reply
    • Rishit Shah says:

      Hi, Shaan!

      There will be no significant change in the difference between entry of debit note or credit note after GST.
      We just have to add GST in each Debit and Credit note just like we do in Purchases and Sales.

      The only change will be that you must deposit the GST as and when due and if then you get a credit or debit note, you have to adjust that in the next GST return.

      Reply
  45. Nripendra says:

    Dear Sir,
    I have sold item Rs. 12324.00 to registered GST customer, in May 2018, but he did’n book purchase , now he wants credit note for the same and issue fresh invoice for the same in august 2018, can it will be possible ??? if Yes then how???

    Reply
    • Rishit Shah says:

      Hi, Nripendra!

      Yes, it is possible but you do not have to issue a credit note.
      You just have to cancel your own sales entry and create a new sales invoice in August month.

      Reply
  46. Manish kumar says:

    Sir I can’t get my 3rd and 4th lesson of day before yesterday.plz resend it on my mentioned email.
    Thanks for giving time.
    Regards
    Manish kumar

    Reply
  48. Savita says:

    Hello,
    I really appreciate the way you teach … and for Debit Note and Credit Note I am grateful to u believe me 🙂
    I used to pray ki koi muze debit,credit note ka sawal na poche..Thanks a lot.

    Reply
  49. Bharti says:

    Sir, Plz guide me to pass an entry of currancy exchange —- recd. 30,000/- Rs. against on 33060/- Rs. of currancy exchange for china.

    Reply
    • Rishit Shah says:

      Hi, Bharti!

      I am assuming you are just exchanging the money and nothing else.
      The entry will be as follows:

      Bank A/c Dr ₹30,000
      Currency Exchange A/c Dr ₹3,060
      To Bank A/c ₹33,060

      This will be a simple journal entry.

      Reply
  51. shanty says:

    Hii rishit,
    I have very much impressed your teaching of debit& credit notes. so many many thanks. so i have enroll in tally expert course

    Reply
  54. Lionel says:

    Hi Sir, i had purchased USD Currency for company expenses(Business Visit of MD). please help to show the entry in tally.
    First is Purchase of USD in exchange of local currency from exchange, and second is to enter expenses part.

    Reply
    • Rishit Shah says:

      Hi, Lionel!

      You have to enable Multi-Currency in Tally for that. It is in Accounting Features in Tally.
      After enabling it, you will find all the options of multi-currency in tally in Accounts Info.

      Now, you can pass all the entries of multi-currency in tally.

      Reply
  56. Syed Saad says:

    Dear Rishit,
    My question regarding DN, i had made a debit note for vendor and at the same time i want to reduce my inventory which used to be return. But after made the debit note my inventory was not reduced and if i made a delivery note against that debit note, it captures the sales account, but actually the return of goods should be in purchase account. Could you please explain me how to deal with this issue.

    Reply
    • Rishit Shah says:

      Hi, Syed Saad!

      When you purchase something and return it, you will create a debit note.
      Once, you create a proper debit note, your inventory will reduce.

      Please check your debit note.

      Reply
  58. k manohar says:

    debit note and credit note explained nicely
    After creating credit note against particular sales invoice., that credit note not reflecting under that sales invoice when checked by pressing Alt “B”
    example
    sales invoice amount 15000
    credit note issued 5000
    payment recd 10000
    so when checked with Alt “B” that sales invoice should not appear
    please reply

    Reply
  60. Gayathree says:

    Hello Mr. Rishith
    I would like to know if the debit and credit notes creation can be substituted with purchase return and sales return in single or multiple ledger groups? Also please confirm if that makes any difference.

    Reply
    • Rishit Shah says:

      Hi, Gayathree!

      No, you cannot use purchase and sales return in single or multiple ledger groups because you cannot create a ledger group for a sales or purchase return in tally.

      This is the difference that it makes.

      Reply
  61. taurus says:

    Our Firm Say M/s XYZ had sold goods on 10/05/18 to one of our Purchaser say M/s ABC Goods Wroth Rs. 31 Lakhs & accordingly in our (i.e. M/s XYZ’s) books of accounts we passed a Sales Entry of Rs. 31 Lakhs as ;
    M/s ABC A/c …Dr. Rs. 31,00,000
    To Credit Sales A/c ….. Cr. Rs.31,00,000

    But at the time of settlement we received only Rs. 14,00,000 & also a Debit Note from our Customer (i.e. M/s ABC ) on 15/05/18 for balance of Rs. 17,00,000 saying now against the dues of Rs.31,00,000 as the price of our goods sold had reduced in the market which got reduced by Rs.17,00,000. So in settlement we are issuing debit Note of Rs.17,00,000.

    The Issues are;
    1st: Here the Goods are not returned by purchaser M/s ABC
    .
    2nd: The Entire amount due of Rs. 31 Lakhs is Settled in following ways;
    1). received Rs.14,00,000 in cash &
    2). Bal. of Rs.17,00,000 Received a debit note asking to settle the account.
    3rd: my Question is How to Account the Debit Note received from M/s ABC in the Books of Accounts of M/s XYZ….?

    Please give me your valuable suggestions

    Reply
    • Rishit Shah says:

      It is simple.

      Firstly, pass the cash receipt entry against the ABC in Tally in Receipt Voucher.
      Now, pass a Credit Note Voucher against the ABC because their debit note is your credit note.

      Reply
  66. Karvannan R says:

    Wow!! What a Nice, clear and Simple way of Teaching and also presenting it in way that common man can understand…

    Reply
  68. shanty says:

    Dear Rishit,
    IN each month end we have clear the duties and taxes.Pls describe duties and taxes entry. In VAT time we enter in journal voucher Dr outputvat
    cr input vat
    cr kvat paid like this . but in GST I don’t know how to enter this type. Is it necessary to enter in each month end. Pls clear my doubts.

    Reply
    • Rishit Shah says:

      Hi, Shanty!

      It is not necessary to clear the GST or VAT accounts every month.
      They should be cleared as and when you pay them. It can be monthly, quarterly or yearly as well.

      When you pay VAT or GST, the entry is the same. Your VAT and GST balances must be credit in the balance sheet so that it becomes your liability otherwise it is your refund or it can be adjusted against future tax liability.

      When GST has a credit balance, you can adjust it by doing the following accounting entry.

      CGST A/c Dr
      SGST A/c Dr
      CGST A/c Dr
      To Bank A/c

      Reply

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