There may be times when a customer returns certain items after the invoice has been paid. In these cases, credit notes are important to allocate returns against invoices. A credit note is issued for the value of goods returned by the customer, the amount may be equal to or lesser than the order of the amount. This credit note can then be used for future purchases and the amount will be deducted from the pending balance whenever this credit note is allocated to a future payment or invoice.

Similarly, we can use Debit notes when we as an organisation are returning items that we have purchased. Credit and debit notes are created against sales and purchase invoices respectively.

Also note that when Credit Note or Debit Note is issues, it doesn’ include refund.