Accounting Advance received from Customer for procurement of Materials

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This query is : Resolved

Balamurugan P (Querist)

02 March 2023 When Customer pays advance for procurement of Raw materials, the amount hits the company account and Purchase order is released by COmpany to vendor and the material is consumed equally in all months over period of 10 months. Whether the material to be accounted with value when received inside company. When the sale is done the material value is to be added to Sales and 10% of material advance to be adjusted in bill amount ? In this case is it essential to account the material with value upon receipt of same from vendor ?

For 2nd option, if Customer buys the materials and consigns the materials from vendor location, what should be accounting and billing practice.

In both options if the material to be valued in inventory and price adjustment to be done while invoicing ?

For 1st Option. can the customer advance ledger, Cash account and revenue account alone can be made use of without adjusting the inventory account ?
Which method is normal and correct ?

CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)

05 March 2023 When the sale is done the material value is to be added to Sales and 10% of material advance to be adjusted in bill amount. In this case it's essential to account the material with value upon receipt of same from vendor
Yes in case of first option.
Inventory will be considered at the year end.

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