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How are you going to treat the Advances from Customer Is it right to be treated as current liabilities?
Princedenison
Customer or clients means you sell them any product, goods or any services.
First is we need to understand the cycle to complete the sale of good and services:
- We deliver products, good or services to the customer or client
- If the payment is not sufficient for the delivered product or services the it would be treated as "Accounts Receivable"
- If the payment from the customer is just equal to the amount of the delivered product or services then it could be as ease
- If the payment received from the customer is excess for the recently delivered product or services, intentionally for the future issue it could be consider now as "Advances from customer"
- We receive money as payment for the good and services
OR If you received an AMOUNT as advance from your customer WITHOUT ANY INVOICE raise or invoice raise in future. Accounting ENTRY IS Debit CASH AND Credit ADVANCES FROM CUSTOMER.
That's why its balance is credited and it's going to Liabilities side in Balance Sheet.
Supplier means you Purchase any products/ services from Supplier on Credit. And you pay him after you received the bill from supplier.
If you paid him as advance payment e.g. Purchase of products/services in future.
Accounting ENTRY IS Debit Advances to Supplier AND Credit Cash
That's why its balance is debited and it's going to Assets side in Balance Sheet.
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