One of clients enter contracts for providing services of 5 years continuosly say agreed at a price of 15 crores for 5 years and raises advance invoices for the same. The company does not record the entries for advance invoices as neither any services have been given nor any payments have been received. i am confused about the accouting entries for the same. Kindly help.
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Accouting entry
Replies (3)
AS PER ACCRUAL CONCEPT WE HAVE TO RECOGNISE THE INCOME AS AND WHEN WE RECIEVE
Since no services have been received and also no payments have been made made, it seems there is no need to pass any journal entry at this stage. If some advance payment is made, then you can pass entries for advance. In case you receive some services and don't make any paytments, then you must pass entries on accrural basis for whatever amount has become due.
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No need to pass any entry in your books as long as you do not book the invoice. As and when you book the invoice, you would accrue the expense and will pass the following entry:
Prepaid Expense Account Dr
Bank Account Cr
As and when you receive the services, you will be passing the following entry every year:
Expense Account Dr
Prepaid Expense Account Cr
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