What is the difference between a credit note and a debit note?

• A. They are the same.
• B. A credit note reduces the amount a customer owes; a debit note increases the amount owed or records an increase in liability.
• C. A debit note reduces revenue.
• D. They do not affect liability.

Answer: (B)

When money changes hands after an invoice, adjustments are made with two kinds of notes. A credit note is issued by the seller to the buyer to record that the buyer’s liability has been reduced—often because goods were returned, an overcharge was found, or a price adjustment was granted. In the books, this lowers the amount the customer owes and also reduces the seller’s receivable.

A debit note, on the other hand, is issued to indicate an increase in what the buyer owes the seller, or to record an increase in liability. This can happen if the buyer was charged too little initially, or if additional charges are agreed (perhaps for extra goods or corrections). So, the direction is the key idea: a credit note lowers what is owed; a debit note raises it.

If you think in terms of accounts: a credit note reduces accounts receivable for the seller and reduces revenue, while a debit note increases accounts payable for the buyer and increases liability.