Down payment entry

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Querist : Anonymous

Querist : Anonymous (Querist)

03 January 2014 PLEASE TELL ME ENTRY FOR
1.DOWNPAYMENT RECD FROM CUSTOMER
2.AFTER THAT EMI RECVD FROM CUSTOMER
3.AND HOW AND WHEN SALES WILL BE ACCOUNTED UNDER THIS SCHEME

Querist : Anonymous

Querist : Anonymous (Querist)

04 January 2014 PLZ HELP EXPERTS ITS URGENT

Aashok Kumar Sharma

Aashok Kumar Sharma (Expert)
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21 July 2024 Certainly! Here's how you can account for down payment received from a customer, subsequent EMI payments, and when sales will be accounted for under such a scheme:

### 1. Down Payment Received from Customer

When you receive a down payment from a customer, you typically record it as follows:

- **Down Payment Account (Asset)** Dr.
- **Bank Account** Cr.

Let's assume the down payment received is 10,000.

**Journal Entry:**
```
Down Payment Account Dr. 10,000
Bank Account Cr. 10,000
```

### 2. EMI Received from Customer

After receiving the down payment, subsequent EMI payments are recorded. For example, if the customer pays an EMI of 2,000:

- **Bank Account** Dr.
- **Revenue or Sales Account** Cr.

**Journal Entry:**
```
Bank Account Dr. 2,000
Sales or Revenue Account Cr. 2,000
```

### 3. Accounting for Sales

Sales should be recognized based on the percentage of completion or when the risks and rewards of ownership have transferred to the customer. Here’s a typical approach:

- **Percentage of Completion Method**: If the down payment and subsequent EMIs represent payments towards a long-term project or contract, you recognize revenue proportionally as the project progresses. This method matches revenue recognition with the completion stage of the project.

- **Risk and Reward Transfer**: If the risks and rewards of ownership have transferred to the customer immediately upon down payment (for example, in case of goods sold with immediate delivery), revenue can be recognized at the time of delivery or when the sales agreement is executed.

**Journal Entry (Upon Completion or Delivery):**
```
Bank Account Dr. Total Amount of Sales
Sales or Revenue Account Cr. Total Amount of Sales
```

### Notes:
- **Deferred Revenue**: If the full service or product is not delivered immediately upon down payment, the down payment received is treated as deferred revenue (liability) until the earnings process is completed.
- **EMI Accounting**: Each subsequent EMI received is recorded similarly, with the bank account debited and the revenue or sales account credited.

Ensure to consult with your accountant or financial advisor to tailor these entries to the specific circumstances of your business and to comply with applicable accounting standards and tax regulations.

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