Accounts Treatment

Advance payment received against sale of flat, so this amount in which head of balance sheet and p&l to be show?

Please give appropriate accounting treatment 

Thanks in advance 

Replies (4)
Quick Summary
When an advance payment is received for a flat sale, it should be treated as a deferred liability on the balance sheet, not immediate revenue. This is because the performance obligation (handing over the flat) has not yet been met. Once the flat is handed over and the sale is complete, the advance payment can be recognised as revenue in the income statement. This treatment aligns with accounting standards that recognise revenue only when performance obligations are fulfilled.

This is similar to deferred revenue.

Debit cash in assets; credit deferred liability in liabilities.

When you hand over the keys to the house,

Debit Deferred Liability in liabilities; credit revenue in income statement.

Bank a/c Dr.
To Advance received from customer.
Advance received from customer is a balance sheet item.

In between make another entry:

House Cost is 10,000₹. Advance received is 5,000₹.

Bank 5000

To Deferred Revenue Liability 5000

which means, you received an advance which cannot be treated as revenue as the performance obligation to surrender the flat for consideration has not been met. When flat is completely sold,

Deferred revenue 5000

To Revenue 5000

Complete revenue recognised. I think this is because there is a liability component to provide the service and recognise revenue when all performance obligations are met. It like subscriptttttions. 

Or else, when there is a fulfilled contract:

Bank 5000

Receivables 5000

To Revenue 10000

I forgot the right accounting treatment but its usually, recognise revenue when all performance obligations are met. The first one is better.

 

The above treatment said by yasaswi is as per Ind AS 115 what I have suggested is as per AS 9.
Ind AS is always substance over legal from.

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