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

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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)

 

 

 

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