Supporting Documents: Credit note MCQs Quiz | Class 9
This quiz is for Class IX students studying Elements of Book-Keeping & Accountancy (Code 254), focusing on Unit 3: Nature of Accounts & Rules for Debit and Credit. It specifically covers the topic of Supporting Documents, including the meaning of a Credit Note and its use in cases of sales returns or overcharging. Answer all questions, submit to see your score, and download the PDF answer sheet for revision.
Understanding the Credit Note
In accounting, every transaction must be supported by a document. These documents are known as source documents or vouchers. A Credit Note is one such important source document. It serves as evidence for transactions involving returns of goods sold or adjustments for overcharges.
What is a Credit Note?
A Credit Note, also known as a credit memorandum or credit memo, is a commercial document issued by a seller to a buyer. It is issued to notify the buyer that their account is being credited for a specific amount. This essentially means the seller is reducing the amount that the buyer owes to them.
When is a Credit Note Issued?
A seller issues a Credit Note in several common situations:
- Sales Returns: When a customer returns goods they previously bought on credit (perhaps because they were damaged, of the wrong type, or poor quality), the seller issues a Credit Note to cancel the original sale value of the returned goods.
- Overcharge on Invoice: If the seller has accidentally charged the buyer a higher price than agreed upon, or made a calculation error in the invoice that resulted in an overcharge, a Credit Note is issued to correct this mistake and reduce the invoice amount.
- Goods Not Up to Standard: If the goods delivered are not as per the sample or description, the buyer might agree to keep them for a reduced price. The seller issues a credit note for the amount of the price reduction.
Key Points to Remember
- Issuer: The seller issues the Credit Note.
- Recipient: The buyer receives the Credit Note.
- Purpose: To reduce the amount owed by the buyer (Accounts Receivable for the seller).
- Accounting Entry: For the seller, it is recorded in the Sales Return Book (or Returns Inward Book). It leads to a debit to the Sales Returns Account and a credit to the Customer’s Account.
- Format: It typically includes the date, details of the buyer, the reason for the credit, the quantity and description of goods, and the amount credited.
Credit Note vs. Debit Note
It’s important not to confuse a Credit Note with a Debit Note. They serve opposite purposes.
| Feature | Credit Note | Debit Note |
|---|---|---|
| Issued By | Seller (to a buyer) | Buyer (to a seller) |
| Reason | For goods returned by the buyer (Sales Returns) or overcharge. | For goods returned by the buyer (Purchase Returns) or undercharge. |
| Effect | Reduces the amount the buyer owes to the seller. | Increases the amount the seller owes to the buyer (or requests a credit). |
Quick Revision Checklist
- A Credit Note is prepared when goods sold on credit are returned by a customer.
- It is evidence for recording an entry in the Sales Return Book.
- It informs the customer that their account has been credited.
- It is always issued by the seller of the goods.
- It can also be used to correct an overcharge in an invoice.
Practice Questions
- Explain the circumstances under which a seller would issue a Credit Note.
- Who prepares a Credit Note and who receives it?
- What is the effect of a Credit Note on the seller’s Accounts Receivable?
- Differentiate between a Sales Return and a Purchase Return. Which document is associated with a Sales Return?
- Why is a Credit Note considered a source document?
