Journal Entry for Advance Payable

When Advance is received against Sales, the following Journal Entry should be passed :

Cash / Bank A/c.....Dr XXX
To Income Received in Advance A/c... XXX

Balance Sheet impact :

Equity & Liabilities Head : Current Liabilities will increase by the amount of Advance received.

Assets : Current Assets ( Cash & Cash Equivalents ) will be increased by the amount of advance received from debtors.

When a company receives an advance payment for goods or services that it has not yet provided, it needs to record this transaction in its books. Here is the journal entry for receiving an advance payment:

• This entry recognizes the increase in the company's cash or bank balance (an asset) and also increases the liability account "Advance from Customers" . The liability is increased because the company has an obligation to deliver goods or services in the future due to the advance payment received.

Cash / Bank Account (Asset Account)

To Advance from Customers Account (Liability Account)

 

• This entry decreases the liability account as the company has now fulfilled its obligation by delivering the goods or services. Simultaneously, it recognizes the revenue earned from the transaction.

Advance from Customers Account (Liability Account)

To Sales or Service Revenue Account (Income Account)