What Is a Debit Note? Definition, Examples, and Journal Entries

A debit note is a formal document that adjusts an amount previously invoiced between trading parties. Buyers issue debit notes to reduce what they owe (for returned goods, overcharges, or pricing errors), and sellers issue them to notify buyers of additional charges. The adjustment creates a corresponding entry in accounts payable or accounts receivable.

Getting debit notes right matters because every adjustment that lacks proper documentation creates downstream problems: reconciliation discrepancies, disputed payments, and audit findings that consume far more time to resolve than the original correction would have taken.

This article covers the debit note definition from both sides of the transaction. You will learn how debit notes compare to credit notes and invoices in a structured side-by-side breakdown, the common scenarios that trigger a debit note in practice, how they affect AP and AR balances, and how to record them with dual-sided journal entries showing what both the issuer and the receiver book. The guide also walks through a step-by-step process for verifying and processing a received debit note as an AP team, and flags the most frequent mistakes that lead to misstatements.

The first step to handling debit notes correctly is understanding exactly how they differ from the other adjustment documents they are routinely confused with.

Debit Note vs Credit Note vs Invoice

Debit notes, credit notes, and invoices all adjust or record financial amounts between trading parties, which is exactly why they get confused so often. Each document serves a distinct role in the transaction lifecycle, and a clear side-by-side comparison eliminates the ambiguity.

Feature	Invoice	Credit Note	Debit Note
Purpose	Requests payment for goods or services delivered	Reduces an amount previously invoiced (issued by the seller)	Requests an adjustment to an amount owed (can be issued by buyer or seller depending on context)
Who typically issues it	Seller	Seller	Buyer (to request a reduction in what they owe, e.g., for returned goods) or seller (to notify the buyer of an additional charge)
Effect on accounts payable (buyer's books)	Increases AP	Decreases AP	Buyer-issued: decreases AP (reflects a return or overcharge claim). Seller-issued: increases AP (reflects an additional charge)
Effect on accounts receivable (seller's books)	Increases AR	Decreases AR	Buyer-issued: decreases AR (acknowledges the buyer's claim). Seller-issued: increases AR
Common triggers	Sale or delivery of goods/services	Overcharges, returns accepted by seller, or agreed discounts	Goods returned by buyer, undercharges discovered, price increases, or bank-imposed fees

The key takeaway from this comparison: invoices establish the original payment obligation, credit notes reduce that obligation from the seller's side, and debit notes adjust it from either side depending on who initiates the correction. For a deeper look at the differences between credit notes and invoices, including how they interact during dispute resolution, that comparison is worth reviewing alongside this one. It also helps to understand the common types of invoices in business, since the invoice type often determines which adjustment document applies.

Understanding when each document is used becomes far clearer with concrete scenarios.

Common Scenarios That Trigger a Debit Note

Debit notes do not appear randomly in your accounts. They arise from specific, predictable situations in the normal course of trade and banking. Recognizing these triggers helps AP and AR professionals respond quickly, issue the right documentation, and keep ledgers accurate.

Below are the most common scenarios, grouped by who initiates the debit note and why.

1. Goods Returned by the Buyer

This is the single most frequent reason a debit note is issued. A buyer receives goods that are defective, damaged in transit, or simply not what was ordered. After returning the goods, the buyer issues a debit note to the seller, formally reducing the amount owed on the original invoice. For example, if a distributor orders 500 units at $12 each but 40 units arrive with packaging damage, the buyer returns those 40 units and issues a debit note for $480 to adjust the purchase return against the outstanding balance.

2. Overcharge Correction

Sometimes a buyer reviews an invoice and discovers the billed amount exceeds the agreed price. The discrepancy might stem from a wrong unit price, a duplicate line item, or a trade discount that was not applied. The buyer issues a debit note to the seller requesting correction of the overcharge. This is especially common in high-volume procurement where pricing tiers or negotiated discounts vary by order size, and even small per-unit errors compound quickly across hundreds of line items. A solid grasp of understanding invoice components makes it easier to spot these discrepancies before they reach the payment stage.

3. Price Increase Notification

In this scenario the seller initiates the debit note. When a contractual price escalation clause takes effect, or when raw-material costs force a mid-contract adjustment, the seller sends a debit note to the buyer for the additional amount above what the original invoice stated. The buyer then owes more than originally billed. This is common in long-term supply agreements for commodities, fuel, or construction materials where prices are tied to an index.

4. Undercharge Correction

The mirror image of an overcharge: the seller realizes the original invoice was too low. Perhaps a line item was omitted, the wrong discount tier was applied, or freight charges were left off. Rather than voiding the entire invoice and reissuing it, the seller sends a debit note covering the shortfall. This keeps the audit trail clean and avoids disrupting payment schedules already in progress.

5. Bank Debit Note

Banks issue debit notes to business account holders for fees, charges, and account-level adjustments. Monthly service fees, bounced-check charges, wire-transfer fees, and foreign-exchange adjustments all commonly arrive as bank debit notes. The context differs from trade debit notes because there is no purchase or sale of goods involved, but the document serves the same purpose: it formally notifies the account holder that their balance has been reduced and provides a reference for the corresponding journal entry.

6. Partial Allowance for Damaged Goods

Not every quality issue results in a full return. When a buyer receives goods that are usable but not in the expected condition, the two parties may negotiate a partial allowance rather than processing a purchase return. The buyer issues a debit note reflecting the agreed price reduction. For instance, a retailer that receives a shipment of slightly scratched display units might negotiate a 15% allowance instead of returning the entire order, then issue a debit note for that amount.

Why These Scenarios Matter for Payment Timelines

Invoice disputes, which are precisely the situations debit notes are designed to resolve, have a measurable impact on cash flow. According to a UK Government study of B2B payment practices, 31% of businesses attributed paying their suppliers late to disputed invoices, making invoice disputes the second most common cause of late B2B payments after administrative errors. Issuing and processing debit notes promptly is one of the most direct ways to clear disputes off the books and restore normal payment cycles.

With these scenarios in mind, the question becomes: how does each one actually move numbers through your accounting records?

How Debit Notes Affect Accounts Payable and Accounts Receivable

How a debit note affects your accounting records hinges on two factors: who issued it, and which side of the transaction you sit on. Getting this right determines whether your accounts payable or accounts receivable balance moves up or down on the general ledger.

When the Buyer Issues a Debit Note

A buyer typically issues a debit note to claim a price correction or notify the seller of a goods return. On the buyer's books, AP decreases: the buyer debits accounts payable and credits inventory or the relevant expense account, shrinking the outstanding liability. The seller's AR decreases correspondingly, with a debit to Sales Returns and Allowances and a credit to Accounts Receivable.

When the Seller Issues a Debit Note

A seller issues a debit note when the buyer was undercharged or a contractual price increase applies retroactively. The buyer's AP increases (debit to inventory or expense, credit to AP), while the seller's AR grows by the same amount (debit to AR, credit to revenue).

The Principle That Eliminates Confusion

Here is the single rule worth memorizing: from the receiver's perspective, a debit note arriving from a supplier means you owe more, while a debit note you issue to a supplier means you owe less. Most recording errors trace back to mixing up these two directions. Before posting any entry, identify who originated the document and your position relative to them.

Summary of Directional Impact

Scenario	Buyer's AP	Seller's AR
Buyer issues debit note (return/overcharge)	Decreases	Decreases
Seller issues debit note (undercharge/price increase)	Increases	Increases

Notice the symmetry: both sides of the general ledger move in the same direction for a given scenario. When AP goes down for the buyer, AR goes down for the seller, and vice versa. If your entry moves one side up and the other down for the same debit note, that is a signal to re-examine the transaction.

The worked examples below put real numbers behind these principles.

Debit Note Journal Entries: Worked Examples

The definitions and scenarios above establish what debit notes do and why they exist. The entries below show exactly how they hit the general ledger, from both sides of each transaction.

Example 1: Buyer Returns Defective Goods

Scenario: A buyer purchased $10,000 of inventory from Supplier A. During inspection, $1,500 worth of goods were found defective and returned. The buyer issues a debit note for $1,500 to reduce the amount owed.

Buyer's journal entry (debit note issuer):

Account	Debit	Credit
Accounts Payable (Supplier A)	$1,500
Inventory (or Purchase Returns)		$1,500

The buyer debits Accounts Payable to reduce the obligation owed to Supplier A and credits Inventory to remove the defective goods from the books.

Seller's journal entry (debit note receiver):

Account	Debit	Credit
Sales Returns and Allowances	$1,500
Accounts Receivable (Buyer)		$1,500

The seller debits Sales Returns and Allowances, which is a contra-revenue account that reduces net sales, and credits Accounts Receivable to reflect the lower balance collectible from the buyer.

Net effect: The buyer now owes $8,500 instead of $10,000. The seller's recognized revenue decreases by $1,500.

Example 2: Seller Corrects an Undercharge

Scenario: Supplier B originally invoiced a buyer for $6,000, but the correct total should have been $6,800 because a line item was omitted. Supplier B issues a debit note for $800 to collect the difference.

Seller's journal entry (debit note issuer):

Account	Debit	Credit
Accounts Receivable (Buyer)	$800
Revenue (or Sales)		$800

The seller debits Accounts Receivable to increase the amount collectible and credits Revenue to recognize the additional sale that was previously missed.

Buyer's journal entry (debit note receiver):

Account	Debit	Credit
Inventory (or relevant expense account)	$800
Accounts Payable (Supplier B)		$800

The buyer debits Inventory (or the appropriate expense account) to record the additional goods or services and credits Accounts Payable to reflect the higher amount now owed to Supplier B.

Net effect: The buyer now owes $6,800 instead of $6,000. The seller's recorded revenue increases by $800.

A Note on VAT/GST Adjustments

If the original transaction included VAT or GST, the debit note must also reflect the corresponding tax adjustment. Both parties adjust their VAT accounts by the tax amount applicable to the debit note value.

For Example 1 at a 10% VAT rate, the $1,500 return would carry $150 in VAT. The buyer would reduce VAT Receivable (or Input VAT) by $150, and the seller would reduce VAT Payable (or Output VAT) by the same amount. Failing to make these adjustments creates mismatches between the general ledger and VAT return filings, which can trigger compliance issues during audits.

The same principle applies to Example 2: the $800 undercharge adjustment at 10% VAT adds $80 to both parties' VAT accounts in the appropriate direction. Record the VAT adjustment in the period the debit note is dated, not the period of the original invoice, so your VAT return aligns with the adjustment documents your trading partner files for the same period.

Recording the journal entry is only one part of handling these documents correctly. The receiver still needs to verify the debit note before it reaches the ledger.

How to Verify and Process a Received Debit Note

When a debit note arrives from a supplier, it represents an additional charge against your account. The purpose of a debit note in this context is to formally adjust the amount you owe, whether due to an undercharge on the original invoice, a contractual price increase, or additional costs the supplier is now claiming. Before posting it to your books, your AP team needs to confirm the debit note is legitimate, accurate, and properly authorized.

Follow this step-by-step workflow each time a supplier debit note crosses your desk:

Match to the original invoice. Locate the original invoice referenced on the debit note. Verify that the invoice number, date, and supplier details align exactly. If the debit note references a purchase order or delivery note, pull those documents as well. Any mismatch at this stage is a reason to pause and query the supplier before proceeding.
Verify the reason and amount. Check whether the stated reason for the debit note (undercharge correction, price adjustment, freight surcharge, or other cause) is supported by your own records. Cross-reference the amount against your purchase orders, contracts, or agreed price lists. Confirm the arithmetic is correct, including any unit pricing, quantities, and extended totals.
Check authorization. Confirm that the debit note carries proper approval from the supplier's side, such as a recognized signatory or a valid reference number. Equally important, route the debit note through your internal approval process so the appropriate manager or budget holder has reviewed and accepted the additional charge.
Verify VAT/tax treatment. If the debit note includes VAT or GST, confirm the tax rate matches the rate applied on the original invoice. Recalculate the VAT amount independently to ensure it is correct. Getting this wrong affects your VAT return, and supplier reconciliation issues tied to tax discrepancies can be time-consuming to unwind later.
Record the journal entry. Post the debit note to your accounting system using the dual-entry approach covered in the previous section: debit the relevant expense or inventory account and credit accounts payable. Tag the entry with the debit note number and the original invoice reference so the two are linked in your records.
Update the supplier ledger. Ensure the debit note is reflected in the supplier's account balance within your AP subledger. This step is critical for accuracy when reconciling vendor statements at month-end or quarter-end. A debit note that sits unrecorded in the subledger will surface as a discrepancy during the next statement review.
File and cross-reference. Store the debit note alongside the original invoice, purchase order, and any supporting correspondence (emails confirming the price change, delivery shortage reports, or contract amendments). Note the debit note number on the original invoice record. This cross-referencing creates a clear audit trail that makes future inquiries and external audits straightforward.

Debit Note Verification Checklist

Use this as a quick reference before finalizing any supplier debit note:

Original invoice located and matched
Reason supported by purchase order, contract, or correspondence
Amount arithmetically correct (including VAT/GST if applicable)
Authorized by appropriate parties (both supplier and internal)
VAT/GST rate and amount verified against the original invoice
Journal entry posted with cross-reference to the original invoice
Supplier ledger updated to reflect the adjusted balance
Document filed with cross-reference to original invoice for audit trail

Even with a reliable verification process in place, certain recurring mistakes can undermine debit note handling and create downstream problems in your accounts.

Common Debit Note Mistakes and How to Avoid Them

Even experienced AP and AR teams make errors with debit notes that lead to reconciliation failures, inaccurate tax filings, and strained supplier relationships. Below are six of the most frequent mistakes and how to prevent each one.

Confusing debit notes with credit notes. When an AP clerk processes a supplier's debit note as a credit note, the ledger moves in the wrong direction by double the intended amount. These two documents are mirror images: a debit note increases the amount the receiver owes, while a credit note reduces it. Prevention: before recording any adjustment document, confirm who issued it and which direction the adjustment moves. If a supplier's document increases your liability, it is a debit note; if it reduces your liability, it is a credit note.

Recording a debit note without matching it to the original invoice. Posting a debit note in isolation creates a floating entry that will not tie back to anything during reconciliation. The adjustment sits orphaned in the ledger, making it difficult to trace and almost guaranteed to cause discrepancies at period-end. Prevention: always match every debit note to the specific invoice number it adjusts before recording. If the debit note does not reference an invoice, request clarification from the issuer before processing.

Ignoring VAT/GST on debit notes. When the original invoice included VAT or GST, the debit note's adjustment carries a corresponding VAT adjustment as well. Failing to record this component means your VAT return will be inaccurate, potentially triggering penalties or audit flags from tax authorities. Prevention: calculate and post the VAT adjustment as a separate line whenever the original transaction was VAT-applicable. Treat the debit note's tax treatment as inheriting directly from the invoice it modifies.

Processing unsigned or unauthorized debit notes. Accepting a debit note without verifying proper authorization exposes the business to illegitimate charges. A supplier could issue a debit note for disputed amounts, or an internal team member could create one without management oversight. Prevention: establish a policy that requires internal approval before posting any supplier-issued debit note. Verify the supplier's signatory authority against your vendor master records, and flag any debit note that lacks a signature or reference number for review before it enters the system.

Not reflecting debit notes in vendor statement reconciliation. A debit note can be recorded correctly in your own ledger but still cause problems if it is not matched against the supplier's periodic statement. When supplier reconciliation ignores outstanding debit notes, the balances will not agree, and the resulting discrepancies consume time to investigate. Prevention: include all outstanding debit notes, both issued and received, when performing periodic vendor statement reconciliation. Treat them with the same rigor as unpaid invoices during the matching process.

Delaying debit note issuance after a return or dispute. A goods return in January that does not generate a debit note until April creates a cross-period mismatch that complicates both reconciliation and financial reporting. The longer the gap, the harder it becomes to locate supporting documentation and match the adjustment to the original transaction. Prevention: issue debit notes within the same accounting period as the triggering event, and build issuance into your returns and disputes workflow so it happens as a standard step rather than an afterthought.

Avoiding these mistakes comes down to maintaining a consistent, documented process for every debit note that crosses your desk, built on the fundamentals of correct identification, proper journal entries, and thorough verification.

Key Takeaways for Managing Debit Notes

A debit note adjusts an original invoice amount, not replaces it. Either the buyer or the seller can issue one. Buyers issue debit notes to claim a reduction (for returned goods or overcharges), while sellers issue them to notify buyers of additional charges. The original invoice remains the baseline; the debit note modifies it.
Use the right document for the situation. Invoices establish the original amount owed. Credit notes reduce that amount from the seller's side. Debit notes adjust it from either side. Selecting the wrong document creates mismatches in AP and AR ledgers that compound during reconciliation.
Identify the trigger to determine who issues the debit note and which accounts are affected. The most common triggers are goods returns, overcharge corrections, price increases, undercharge corrections, and bank fees. Each scenario follows a distinct accounting path, so recognizing the trigger first prevents posting errors.
Record journal entries on both sides of the transaction. The issuer and receiver create mirror-image entries. A debit note that increases Accounts Payable for the receiver simultaneously increases Accounts Receivable for the issuer, with corresponding impacts on inventory, revenue, and expense accounts. One-sided recording leaves intercompany balances unreconciled.
Verify every received debit note before recording it. Match it to the original invoice, confirm the stated amount and VAT calculation, check that the issuing party had authorization, and post it before your next vendor statement reconciliation. Skipping verification risks accepting incorrect charges.
Watch for the three most frequent mistakes. Confusing debit notes with credit notes reverses the intended adjustment. Skipping the VAT or tax component on the debit note creates a discrepancy with tax filings. Failing to match debit notes to their original invoices during reconciliation leaves unexplained variances in vendor and customer statements.
Issue debit notes promptly and file them alongside the original invoice. The longer the gap between the triggering event and the debit note, the harder it becomes to verify details and secure approval. Storing the debit note alongside the original invoice and any related credit notes creates a complete audit trail for each transaction.

Maintaining clear procedures for debit note issuance, verification, and recording keeps AP and AR balances accurate and prevents the invoice disputes that delay supplier payments.