Debit Notes
Overview
Debit notes are used to record refunds or adjustments from vendors. They can be created to handle returns of purchased products, or general credit adjustments towards vendor accounts.
Debit notes in Mezan can serve two distinct purposes:
- Return Debit Notes: These are created when returning products to vendors, typically due to defects, damages, or incorrect items. They reverse the accounting entries of the original purchasing invoice, including expense recognition, inventory adjustments, and purchase tax records. Return debit notes are the proper way to handle product returns or invoice corrections that need to be reported for tax purposes.
- General Debit Notes: These are received from vendors as general-purpose credits, typically for overpayments, negotiated discounts, or compensation for issues. These credits can be applied against future invoices as discounts, but do not affect purchase tax reporting. They simply act as a credit balance that can offset future invoice amounts.
The debit notes' available balance can be used in two ways:
- Invoice Debit Settlement: The debit can be applied to reduce the amount due on purchasing invoices. Multiple debit notes can be applied to a single invoice, and a single debit note can be split across multiple invoices.
- Cash Refund: The debit amount can be refunded to the vendor via a refund receipt, using up its balance. This is how cash refunds are processed in Mezan.
Fields of the Debit Note Form Explained
- Transaction Date: The date when the debit note is issued. This date determines when the accounting entries are recorded in the general ledger.
- Vendor: The vendor to whom the debit note is issued. For return debit notes, this must match the vendor on the original invoice.
- Vendor Account: The accounts payable account associated with the vendor. This is typically inherited from the vendor's settings.
- Debit Account: The account that will be credited when this debit note is used. For return debit notes, this defaults to the revenue accounts of the returned products. For general debit notes, this can be any appropriate account (e.g., discounts given, compensation expense).
- Debit Amount: The total amount of the debit note.
- Inventory Store: For return debit notes, this specifies which store's inventory will receive the returned products. This field is only relevant for return debit notes with inventory-tracked products.
- Returned Products: Only available for return debit notes. This section lists the products being returned from the original invoice, with the following details for each product:
- Product: The product being returned, you can select which products to return from the original invoice, this cannot be modified.
- Quantity: Number of units being returned, it cannot exceed the quantity of the original invoice.
- Unit Price: The original unit price from the invoice, this cannot be modified.
- Tax: The tax rate and amount that was charged on the original invoice, this cannot be modified.
- Subtotal: The total amount being credited for this product. This is calculated automatically based on the unit price and quantity.
- Transaction Note: This is a text field to add any notes or description about the invoice. This is optional and purely for reference purposes. It does not show up on the printed invoice, only shows up on the general ledger and account statements of the related transactions.
Debit Note Other Properties
- Debit Note Reference: Automatically generated by Mezan based on your organization's counters settings. It is only generated after the debit note is confirmed for the first time. It is a unique identifier for the debit note in the organization.
- Confirmation Status: This is used to track the status of the debit note. It can be "Draft" or "Confirmed". This is a common approach across all transactions in Mezan. Confirmed state can influence if it shows up in reports by default or not, as reports can be filtered based on the confirmation status. Sales invoices are a special case in Mezan where it is not possible to "Unconfirm" an invoice once it is confirmed, due to regulatory requirements on Mezan as an entity that operates according to the regulations of Saudi Arabia. If you need to "remove" or amend a confirmed invoice, you must do so by performing the necessary refund operations to reverse all the transactions and creating a new invoice. Mezan provides a shortcut for invoices to perform a "quick refund" for confirmed invoices.
- Organization Member: This is the organization team member who created the invoice. It is automatically populated by the system based on the user who created the invoice. It is useful in reporting, permissions, and audit purposes.
- Returned Invoice: If the debit note is a return debit note, this is a link to the original purchasing invoice that was used to create the debit note. It is automatically populated if the debit note was created via return from a purchasing invoice.
- Linked Refund Receipts: To track the balance of the debit note of, debit notes can generate refund receipts if it was refunded in cash after the debit note was created. Refund receipts are generated via the "general receipts" transaction type in Mezan, linking back to the issuing debit note and vendor record.
- Linked Invoice Credit: To track the usage status of the debit note. In Mezan, debit notes are separate records that can be created independently of invoices. A debit notes "available debit" can be linked to discount the due amount of the invoice. Similarly, refund receipts can be used to use the balance of the debit note.
Transactions Generated by Debit Notes
The transactions generated depend on the type of debit note:
Return Debit Notes
- Accounts Payable: A debit entry on the vendor's payables account, to reduce the amount due to the vendor.
- Credit Account: This is usually a contra-expense account that will be debited for the returned products. This reduces the expense recognized for the returned products.
- Inventory: For inventory-tracked products, a credit entry on the inventory account to reflect the return of the product to the vendor.
- Tax: If the purchasing invoice had tax-deductible products, a credit entry on the purchase tax account to reverse the tax reduction from the original invoice.
General Debit Notes
- Accounts Payable: A debit entry on the vendor's payables account, to reduce the amount due to the vendor.
- Credit Account: This is usually a contra-expense account that will be debited for the general debit note. This reduces the expenses recognized towards the vendor, usually incase of discounts granted from specific vendors.