Advance received from Customer and advance paid to supplier

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

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)

 

 

 

Comparison of Journal entry

ADVANCE RECEIVED FROM CUSTOMER

ADVANCE PAID TO SUPPLLIER

B is our customer

A is our supplier

When advance is received from customer Rs. 5000

When advance is paid to supplier  Rs.  5000

Bank A/c  Dr     5000

    To B advance received A/c    5000

(Being advance received)

A  advance paid A/c  5000

    To bank A/c                      5000

(Being advance paid)

When invoice is raised Rs 10,000

When invoice is received Rs. 1000

 B advance received A/c Dr.    5000

  B                                     Dr.       5000

        To Sales A/c                                    10,000

(being sale made)

Purchase A/c Dr       10,000

   To A                                         5000

    To A  advance paid A/c   5000

(being purchase made)

 

Note :

  • B advance received is our liability.
  • A advance paid is our asset .
  • When bill are raised and received we adjust our assets and liabilities .

 

Advance receipt and Advance paid in balance sheet

Liabilities

Amount

Asset

Amount

Advance received

from customer

Xxxx

Advance paid

To supplier

xxxx

Journal entry of Receipt on Advace in GST in service

Advance received from the customer with GST

Mohan received Advance  Rs 118,000 on 1 Jan 2021. from Krishna Traders local trader.

Particular

Amount

Bank a/c Dr.

118,000

   To Krishna Traders

   118.000

(being advance received from Krishna)

Now this advance include 18,000 GST amount which is

CGST 9000

SGST 9000

Now on 31 Jan 2021.

Particular

Amount

Tax on Advance a/c Dr.

18,000

   To Output CGST

   9.000

   To Output SGST

   9,000

(being tax paid in advance)

When a sale is made 

Particular

Amount

Krishna Traders Dr

118,000

   To Sales

   100000

   To Output SGST   A/c

        9,000

   To Output CGST A/c

        9,000

(being sales made )

 

Particular

Amount

  Output CGST A/c Dr

9,000

   Output SGST A/c Dr

9,000

        To Tax on Advance A/c

   18,000

(being an adjustment of advance)

Note no GST on advance on goods under GST but on service, it is still applicable.

Thus, advance payment under GST made in respect of the supply of goods would not attract any GST liability. However, the liability of on the advance payments for supply of services would continue to exist.

 

Newsletter Signup

Subscribe to our weekly newsletter below and never miss the latest product or an exclusive offer.