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
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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) |
|
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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) |
|
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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) |
|
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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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