What Is a Debit & Credit Note?
Debit and credit notes are common terms in modern-day banking. If you have a background in accounting or finance, you will recognize that bookkeepers also use these terms when recording corporate transactions. When applied correctly, debits and credits enable organizations to prepare and publish accurate financial statements and customer data.
In banking terminology, a debit note is a charge to a customer's account. Specific transactions give rise to a debit note, also called a debit memorandum or debit notice. These include checks, automated-teller-machine (ATM) withdrawals and point-of-sale purchases. Avoid confusion between a banking debit note and a bank debit card, which enables an accountholder to withdraw money or charge purchases directly to the account. For example, you use your bank debit card for the following transactions: grocery purchases and electronic payment of the monthly utility bill for $100 and $50, respectively. Your bank sends you two debit notes totaling $150, or $100 plus $50, and deducts the amount from your account.
The accounting concept of debit applies to specific transactions. To record a transaction, a corporate accountant -- usually a bookkeeper -- debits and credits financial accounts. These include assets, liabilities, equity, expenses and revenues. To increase an asset or expense account, the bookkeeper debits it. For example, a firm's controller notes that the monthly rent is due within 15 days. To record the transaction, the controller debits the rent-expense account and credits the vendor-payables account.
A banking credit note is a refund or addition to a customer's account. For example, if the client receives a refund from the Internal Revenue Service, the bank credits the customer's account. Another transaction that generates a credit is the direct deposit of a customer's periodic pay.
A corporate accountant credits an asset or expense account to decrease its amount. The account does the same thing to increase balances in a liability, revenue or equity account. For example, a firm's generates $1 million in monthly sales. To record the transaction, the bookkeeper credits the sales account for $1 million and debits the cash account for the same amount. In accounting terminology, debiting cash -- an asset account -- means increasing corporate funds.
Debit and credit notes are distinct terms when you analyze them in the banking context or in the accounting world. However, a conceptual link unites these terms. For example, when a bank credits a customer account, it increases the client's funds. In the same entry, the bank also credits its own cash account, which -- under accounting rules -- reduces corporate funds. To sum this up: a bank credit interrelates with an accounting credit because the bank increases the customer's account in one entry and decreases its own funds in another entry.