What is the Accounting Entry for Advances Received from Customers?
Advances Receipts is the common practice of every Business and it is seen everywhere in the world. When we want to buy a Car we have to first Look the Car by paying off the Advance amount at Car Show Room. The Car Show Room accountant will have to consider it as an Advance from the Customer.
Likewise whenever an amount is received from any customer before the delivery of the consignment it is good idea to write them as Advances from Customer and it will be good to see while preparing the Balance Sheet of a Company.
Finalizing the Accounts of Books at the time of Assessment of Income Tax Returns is most import thing that an Accountant, CA must consider about the Balance Sheet presentation of the firm. They have to understand the scope of the business and have to prepare the Balance Sheet keeping the business nature and prospectus in the view.
If anything goes wrong the status of the Balance sheet will reflect the negative financial position of the business in the industry. The same thing was done in the Balance Sheet of AccountsGuy.Net because of showing the Customer Advance under Sundry Creditor.
What are Advances from Customers
Whenever a business gets Advances from its customers it is treated as the Unearned Revenues for which the business is liable to supply the Stock or Service for the worth of the Advances it has received.
Accounting Treatment for Advances from Customers
As per basic accounting concept the accounting treatment for Advances received from the customers will be treated as liability as we already discussed above. So, we need to Credit the Customer Advances or Unearned Revenues Ledger and Debit either Cash or Bank Ledger. Hence, the accountant has to pass following accounting entry in the books of their Firm
Cash or Bank A/c Dr 25,000
To Customer Advances A/c 25,000
As we stated above the Customer Advances will be shown in the Balance Sheet. And this is the Accounting Treatment for Trade Advances received from Customers.
