Advance given by Private Limited company

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This query is : Resolved

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A Private Limited company with excess funds from income tax refunds is asking if they can give this money as an advance to a non-director individual instead of recording it as an expense. The advice clarifies that an advance itself isn't an expense and can be given if business-related. If the advance is for salary to an employee, it's considered a salary advance and must be deducted from future pay, not expensed immediately. The discussion also touches on the importance of clear accounting for refunds and the need for proper documentation for any advance payment.

DIVYESH JAIN

DIVYESH JAIN (Querist)
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29 May 2021 Dear Sir,

I am having an excess balance of Rs. 3 lacs in my bank account of my Pvt Ltd company which came from my previous Income tax refunds. Can I give this amount as an Advance to another person (who is not a Director in the comany) instead of showing it as an expense.

If I show this amount as an expense the company will incur loss.

Regards,
Divyesh Jain

CMA Poornima Madhava

CMA Poornima Madhava (Expert)
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29 May 2021 Advance itself cannot be shown as expense. You may give advance to any person if the transaction is related to business.
In order to show it as an expense, you need to get the invoice from the person to whom advance has been paid.

DIVYESH JAIN

DIVYESH JAIN (Querist)
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29 May 2021 Nature of my business is Salary reimbursement and Salary paid. Can i show it as Advance paid to XYZ as a salary advance?

CMA Poornima Madhava

CMA Poornima Madhava (Expert)
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29 May 2021 If XYZ is an employee and salary is paid to XYZ, then it is a salary expense.
Yes, advance paid to an employee is a salary advance. It is not an expense and the same needs to be deducted from future salary.

DIVYESH JAIN

DIVYESH JAIN (Querist)
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29 May 2021 Ok, Thanks for your reply

KAVIRAJA ADDANGADI

KAVIRAJA ADDANGADI (Expert)
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05 June 2021 why you need to show advance dummy entry if company got refund let it be there in bank there is no clarity refund is pvt ltd company or your individual refund ? if it is individual refund why you want to show advance to salary today or tomorrow advance need to be adjusted for salary don't pass unnecessary entry . for showing advance or payment you need to transfer money from bank account.

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