What is a debit note and under what other names does it go?
As we mentioned in the introduction – entrepreneurs usually document sales using VAT invoices. However, when the situation precludes the possibility of issuing a standard invoice, it is necessary to confirm the conclusion of the transaction in another way. One of the ways is just to issue a debit note.
Same document, different names
Although it is a fairly simple document, the naming issue can already cause problems. In various sources, we can encounter several terms. Accounting note is the basic name for the type of document. The types of accounting note, in turn, are:
- debit memo – a document evidencing the receipt of revenue or incurrence of expenses not subject to value added tax,
- credit note – as above, but the credit note is issued by the party to the transaction that owes the other party a receivable – thus recognizing the existence of the above receivable,
- Discretionary-charge accounting note – it is issued in a situation where the issuing party can be charged, and at the same time recognize the charge,
- External accounting note – issued when a party settles accounts with an external entity,
- Internal accounting note – issued as part of intra-company settlements – an example would be the settlement of premiums.
In what situations can an accounting note be used?
An accounting note is a document that replaces a VAT invoice when transactions are not subject to VAT. As a result, it is usually not a typical sale, but rather the need to recover receivables. Here are examples of situations in which we can issue an accounting note:
Failure to pay on time – if the counterparty has not paid on time, a debit note can be issued to charge liquidated damages or when charging interest for latepayment.
Correction to an invoice issued by the seller – the buyer can issue accounting notes in correction of errors made by the seller issuing the invoice. In order for an adjustment to be made using an accounting note, the error should involve one or more of the items listed:
- issue dates,
- Seller’s or buyer’s data,
- taxpayer identification numbers,
- The date on which the operation was performed, the service was provided, the goods were delivered or the payment was received,
- Names of goods or services.
Demand for payment of ind emnity – when an entity approaches an insurer to make a demand for payment of indemnity, it may use a debit note. It is the debit note that allows you to charge the insurer for the costs.
Transfer of costs to the buyer – when doing so, it is important to remember that accounting notes can only be used if you are transferring costs on which you do not have to pay VAT. This could be, for example, stamp duty or membership fees.
Charging an employee – an employer has the right to issue a debit note to an employee who has damaged company property (and is thus obligated to compensate for the loss) or has received another type of penalty.
How to post a debit note?
In order for a debit note to be recorded in the income and expense ledger, it is necessary to meet the conditions described in the Accounting Law, specifically in Art. 21 para. 1 of this document.
In the next section, we provide a list of data that is completely sufficient to issue a debit note eligible for posting.
The provisions of the Regulation on the Maintenance of a Tax Revenue and Expense Ledger may also be helpful in determining the possibility of posting a debit note in the books.
§ 11 para. 3 of the document mentions that the basis for entries in the income and expense ledger is accounting evidence, which includes (in addition to invoices) also other evidence stating the fact of the economic operation in accordance with its actual course and containing:
- Information to identify the parties involved in the operation (contact information, including addresses and names of entities),
- the date of preparation of the evidence (note) and the performance of the economic operation,
- A description of the business operation with the value and determination of the quantity (if applicable),
- signature of the person responsible for documenting business operations by the parties.
It is customary to leave a space on the accounting note for the signature of the issuer of the evidence and the recipient of the document, but the signature on a debit note is not required, for the reason that this document does not certify a change in assets, nor is it substitute evidence. It is sufficient that the information provided makes it possible to establish the identity of the parties mentioned in the document.
Accounting note – template
What information should be included in an accounting note? Although there is no fixed, statutorily defined template for an accounting note, in order for such a document to be binding, it should contain a range of information, including:
- Title: accounting note, alternatively, specify the type of transaction evidence, for example, debit note or credit note,
- document number,
- issue date,
- due date,
- payment method,
- designation (original or copy),
- The issuer’s data (name or first and last name, address and contact information, tax ID),
- Recipient data (name or first and last name, address and contact information, tax ID).
Then specify the details of the debits and/or credits, including the amount of the debit or credit, the currency, and including a brief description to identify the debit (e.g., stamp duty). The debit note should also include the date of the business operation.
The accounting note should be summarized by stating the total amount (numerically and verbally).
Before drawing up the document, remember that debit notes should be issued in duplicate – the original for the recipient, a copy for the issuer. Remember also that an accounting note cannot be used to certify transactions that are subject to VAT.
