Glossary
Credit note
A document that reduces the amount a customer owes, usually for returns or an overcharge.
What it means
A source document issued by a seller to a buyer to cancel all or part of an invoice, for returns or corrections.
Example
A customer returns RM200 of goods, so the seller issues a credit note for RM200.
Why it matters
It is the source document for recording returns, reducing the customer's balance.
In practice
A credit note is the source document for returns and overcharges. The seller writes it up in the returns inwards day book. The buyer writes it up in the returns outwards day book. For the seller, issuing a credit note means debiting returns inwards and crediting the customer, which reduces the receivable. For the buyer, receiving one means debiting the supplier and crediting returns outwards. It is often printed in red to tell it apart from an invoice.
For example, a customer returns goods originally invoiced at RM75. A credit note for RM75 is issued and the customer's account is credited by that amount, cutting the debt owed.
Students often confuse it with an invoice, which moves the account the opposite way. An invoice records a sale and increases the amount owed. A credit note reverses part or all of that. A debit note is different again. It is a request from the buyer for a credit note.
If documents and returns are confusing, one of our teachers can show you which document triggers which entry. Book a trial class.
Related terms
Syllabus reference: Cambridge 0452 and 0985, syllabus for 2027 to 2029, sub-topic 2.2 Business documents (page 12).
Definitions here are general accounting explanations for study. For your board's exact wording, see its official syllabus via Sources.
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