Journal entry of Advance received from Customer and advance paid to Supplier

Advance received form Customer

When Advance received from customers that is current liabilities as its our obligation for us to deliver goods and service in future. Before going further we have to understand what is Advance paid through the accounting rule of assets and libilities

When we have to ADD Asset in business,	we have Debit that accounts
When we have to Deduct MINUS Asset in business	we have Credited that accounts
When we have to ADD Liability in business	we have Credited that accounts
When we have to Deduct MINUS Liability in business	we have Debit that accounts

A cash advance received from customer journal entry is required when a business receives a cash payment from a customer in advance of delivering goods or services. in return of it.

Advance paid to Supplier

When an advance is paid to the supplier in such condition we are adding our asset as in the exchange of our money the supplier will provide our goods and services in future .When Advance paid to supplier hat is current Asset as its our right to get deliver goods and service in future. Before going further we have to understand what is Advance paid through the accounting rule of assets and libilities as mention above table.

Example of advance received and advance paid journal entry

Example

A ltd sign a contract with B ltd for consulting services Rs 50,000 and received Rs 20,000 cash in advance.

Here things to be noted that we did not need to make a entry of contract only journal entry of advance need to be made in the book A ltd and B ltd.

In the books of A ltd

Journal Entry will Be

PARTICULAR	AMOUNT	AMOUNT
Cash A/c Dr.	20,000
To Advance from B ltd		20,000
(BEING CASH RECEIVED IN ADVANCE FROM B LTD)

Note : Advance from B ltd is liability as the money received in advance for service to be provided in future therefore its our obligation to provide service and as we are adding liabilty to our business therefore we are adding to our business.

Account	Implementation
Cash	Debit as cash is coming in business
Advance received form B Ltd	Credit as liability is added to business

In the books of B Ltd

PARTICULAR	AMOUNT	AMOUNT
Advance paid to A ltd	20,000
To cash		20,000
(BEING CASH PAID IN ADVANCE FROM A LTD)

Note : Advance paid to A ltd is assets in the bookd of B ltd as he has to receive service in future hence we are increasing our asset in business therefore we are adding it .

Account	Implementation
Advance paid to A ltd	Debit as Asset is added in business
Cash	Credit as Cash is going out

Adjustment of Advance received

Paid future remaining advance to B ltd Rs 30,000 and get a invoice from Party.

as mention above we have created our assets and libilities in the book of A

Journal entry In the books of A ltd

PARTICULAR	AMOUNT	AMOUNT
Cash A/c Dr.	20,000
To Advance from B ltd		20,000
(BEING CASH RECEIVED IN ADVANCE FROM B LTD)

Adjustment of advance in the book of A ltd

PARTICULAR	AMOUNT	AMOUNT
Advance from B ltd	20,000
To Consulting service A/c		20,000
(BEING ADVANCE ADJUSTED AGAINST SALES)