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Lesson 20 of 48 – Credit Note
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📄 Credit Note in Tally Prime

A Credit Note is issued by the seller when the customer returns sold goods, goods are damaged, excess amount is charged, or a sales adjustment is required.

Lesson Objective Learn how to record Sales Returns, Customer Adjustments and Credit Notes in Tally Prime using Ctrl + F8.
1. What is a Credit Note?

A Credit Note is a document issued to reduce the amount receivable from a customer after a sales return or sales adjustment.

Reason Use Credit Note?
Sales Return ✔ Yes
Damaged Goods Returned ✔ Yes
Wrong Product Delivered ✔ Yes
Excess Amount Charged ✔ Yes
Purchase Return ❌ Debit Note
2. Shortcut Key
Voucher Shortcut Key
Credit Note Ctrl + F8
Gateway of Tally → Voucher Entry → Press Ctrl + F8
3. When is Credit Note Used?
Situation Credit Note
Customer Returned Goods ✔ Yes
Wrong Selling Price ✔ Yes
Damaged Goods Returned ✔ Yes
Discount Given After Invoice ✔ Yes
Purchase Return ❌ Debit Note
Credit Note is always related to Sales and Customers.
4. Example – Sales Return

Customer Ram returned goods worth ₹8,000.

Debit Credit
Sales Return A/c ₹8,000 Ram A/c ₹8,000
The customer's outstanding balance decreases after issuing the Credit Note.
5. Example – Price Adjustment

The customer was charged ₹1,500 extra by mistake.

Debit Credit
Sales Discount / Sales Return A/c ₹1,500 Customer A/c ₹1,500
A Credit Note reduces the customer's payable amount without recording a new sale.
6. Credit Note with GST Adjustment

When a customer returns goods, the GST charged on the original sales invoice must also be reversed. Tally Prime automatically adjusts GST when the Credit Note is recorded correctly.

Example

Customer returned goods worth ₹10,000 (GST @18%).

Particular Amount
Sales Return Value ₹10,000
CGST (9%) ₹900
SGST (9%) ₹900
Total Credit Note ₹11,800
The Output GST Liability is reduced automatically when GST details are configured correctly.
7. Common Sales Return Scenarios
Situation Action
Damaged Goods Returned Create Credit Note.
Wrong Product Delivered Issue Credit Note.
Customer Received Less Discount Issue Credit Note for adjustment.
Excess Quantity Billed Adjust through Credit Note.
Defective Product Under Warranty Return goods and issue Credit Note.
Credit Notes maintain correct customer balances, sales records and GST reporting.
8. Steps to Record a Credit Note
  1. Open Tally Prime.
  2. Go to Voucher Entry.
  3. Press Ctrl + F8 for Credit Note.
  4. Select the Customer (Party Ledger).
  5. Select the Sales Return Ledger.
  6. Select the Stock Item (if inventory is enabled).
  7. Enter Quantity and Rate.
  8. Verify GST Adjustment.
  9. Enter Original Invoice Number and Narration.
  10. Press Ctrl + A to Save.
Always verify the original Sales Invoice before creating a Credit Note.
9. Important Fields in Credit Note
Field Description
Date Credit Note Date
Customer Ledger Customer Name
Sales Return Ledger Sales Return Account
Stock Item Returned Product
Quantity Returned Quantity
Rate Sales Rate
GST GST Reversal
Invoice Number Original Sales Invoice Reference
Bill-wise Details Adjust Customer Outstanding
Narration Reason for Return
Complete details help maintain accurate customer accounts, inventory and GST returns.
10. Common Mistakes While Recording Credit Note
Common Mistake Correct Practice
Using Sales Voucher instead of Credit Note. Use Ctrl + F8 for Sales Returns.
Selecting the wrong Customer. Verify the Customer Ledger.
Wrong Returned Quantity. Match with the returned goods.
Incorrect GST Rate. Verify GST reversal carefully.
Wrong Sales Return Ledger. Select the correct Sales Return Account.
Missing Original Invoice Number. Enter the correct invoice reference.
Leaving Narration Blank. Clearly mention the reason for the return.
Saving without verification. Review the complete Credit Note before pressing Ctrl + A.
Incorrect Credit Notes may affect Customer Outstanding, Stock Summary, Sales Register, GST Returns and Financial Statements.
11. Real Business Case Studies

Let's understand how Credit Notes are used in different businesses.

Business Situation Action Taken
Retail Shop Customer returned damaged grocery items. Issued Credit Note.
Medical Store Customer returned expired medicines. Issued Credit Note.
Electronics Shop Customer returned a defective laptop. Issued Credit Note.
Garment Store Wrong size garments returned. Issued Credit Note.
Computer Institute Returned damaged computer books. Issued Credit Note.
Furniture Showroom Customer returned damaged office chair. Issued Credit Note.
Credit Notes reduce Customer Outstanding, update Inventory and reverse GST whenever applicable.
12. Credit Note vs Debit Note vs Sales Voucher
Credit Note Debit Note Sales Voucher
Sales Return Purchase Return New Sale
Issued by Seller Issued by Buyer Issued by Seller
Ctrl + F8 Ctrl + F9 F8
Reduces Customer Outstanding Reduces Supplier Outstanding Creates Customer Outstanding
Stock Increases Stock Decreases Stock Decreases
Easy Trick
  • 🔄 Customer Returns Goods → Credit Note
  • 📦 Supplier Takes Goods Back → Debit Note
  • 🛒 New Sale → Sales Voucher
13. Professional Tips & Customer Reconciliation
  • Verify the original Sales Invoice before creating a Credit Note.
  • Check returned quantity carefully.
  • Inspect returned goods before accepting them.
  • Verify GST adjustment.
  • Use Bill-wise Details for customer adjustment.
  • Always mention the reason for the return.
  • Keep delivery challan and return receipt safely.
  • Reconcile customer balances regularly.
  • Review Credit Notes before filing GST Returns.
  • Maintain proper documentation for future audits.
Professional accountants always attach the original sales invoice, return receipt and Credit Note together for proper documentation.
14. Practical Exercise & Interview Questions
Practical Exercise
  1. Create a Credit Note for Sales Return.
  2. Return damaged goods worth ₹12,000.
  3. Create a Credit Note with GST adjustment.
  4. Adjust excess billing using Credit Note.
  5. Return wrong product received by the customer.
  6. Verify Stock Summary after Sales Return.
  7. Check Customer Outstanding Report.
  8. Verify GST Reports after saving the Credit Note.
Interview Questions
  1. What is a Credit Note?
  2. Which shortcut key opens Credit Note?
  3. When is Credit Note used?
  4. Who issues a Credit Note?
  5. What is Sales Return?
  6. Difference between Credit Note and Debit Note?
  7. Difference between Credit Note and Sales Voucher?
  8. How does Credit Note affect Customer Outstanding?
  9. How does Credit Note affect Inventory?
  10. How does Credit Note affect GST?
  11. Can Credit Note be used for Purchase Return?
  12. What documents are required before issuing a Credit Note?
  13. Why is narration important?
  14. Can Credit Note be altered later?
  15. Which reports are updated after Credit Note?
  16. Why is Bill-wise Detail important?
  17. How is GST reversed?
  18. Why should customer reconciliation be done?
  19. What precautions should be taken before saving?
  20. Why is Credit Note important in accounting?
15. Lesson Summary
  • Learned the purpose of Credit Note.
  • Recorded Sales Returns.
  • Adjusted Customer Outstanding.
  • Learned GST Reversal.
  • Updated Inventory after returned goods.
  • Recorded damaged and incorrect product returns.
  • Compared Credit Note, Debit Note and Sales Voucher.
  • Learned professional accounting practices.
  • Completed practical exercises.
  • Prepared for accounting interviews.
Congratulations! You can now confidently record Credit Notes (Ctrl + F8) in Tally Prime for sales returns, customer adjustments and GST reversal.

🧠 Quick Quiz

Which shortcut key is used to open the Credit Note in Tally Prime?



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