Glossary
What is a credit note?
The right way to fix an invoice that has already gone out: a new document that reduces it, rather than an edit.
Updated
In short
A credit note is a document a seller issues to reduce an earlier invoice, for returns or overcharged price or tax. In SimpleERP a credit note links to the invoice, can return stock, and is applied to invoices or refunded.
A credit note is a document a seller issues to reduce the value of an earlier invoice, for example when goods are returned or the price or tax charged was too high. Under GST it must refer to the original invoice and reduces the seller's output tax for the period it is reported in. It is the correct way to correct an invoice that has been issued, rather than editing or deleting it.
Credit note: a worked example
Ravi Stores returns 2 office chairs billed at ₹6,450 each. Lakshmi Steel Furnitures issues a credit note against the original invoice:
| Account | Debit | Credit |
|---|---|---|
| Sales returns | ₹12,900 | |
| Output CGST 9% | ₹1,161 | |
| Output SGST 9% | ₹1,161 | |
| Accounts receivable: Ravi Stores | ₹15,222 |
The 2 chairs go back into stock at their average cost of ₹4,200 each, so inventory rises by ₹8,400 and cost of goods sold falls by the same amount. Ravi Stores now owes ₹15,222 less.
Is there a time limit for a GST credit note?
Yes. The output tax can be reduced only if the credit note is reported by 30 November after the end of the financial year, or the date of filing the annual return, whichever is earlier. See credit and debit notes under GST.
FAQ
Questions, answered
Can I just edit the invoice instead of issuing a credit note?
Not once it has been issued and reported. The customer may already have claimed input tax credit on it. A credit note keeps both records honest: the original invoice stays as issued and the reduction is a separate, dated document that both sides can report.
What must a GST credit note show?
The supplier's name, address and GSTIN, a serial number and date, the recipient's details and GSTIN if registered, the original invoice number and date, the taxable value, the tax rate and amount being reduced, and the signature of the supplier or their authorised person.
Does a credit note always return stock?
No. A return of goods brings stock back. A credit note for a price correction or a discount agreed after the sale reduces the amount owed without any stock moving. Choose which applies when you raise it.
Can I refund a credit note in cash?
Yes. If the customer has no open invoice to apply it to, refund it from cash or bank. The refund clears the credit balance on the customer's account, and the history shows the invoice, the credit note and the refund linked together.
Related
Keep reading
Debit note
A document that increases an invoice or records a purchase return.
Read moreAccounts receivable
Money customers owe for goods and services already invoiced.
Read moreCredit and debit notes
When to issue a credit note or a debit note under GST, what each one changes in your books and returns, with a worked 10-chair return.
Read more
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