Advance Payment Entry
Payment done by the customer before accepting delivery of the product is an Advance Payment. For Orders of high value, the business houses expect to receive advance.
For Example: Consider a customer- Jane D'souza placing an order for a double bed costing $10000 She is asked to give some advance before the furniture house begins work on her order. She gives them $5000 in cash.
Once Sales Order or Purchase Order is submitted, you will find option to create Advance Payment entry against it.
To directly create Advance Payment Entry, Go to:
Accounts > Documents > Journal Entry > New Journal Entry
Select a Voucher Type based on a mode in which advance payment is made.
Since the customer has given $5000 as cash advance,it will be recorded as a credit entry against the customer. To balance it with the debit entry [as per the Double accounting system] enter $5000 as debit against the company's cash account. In the row "Is Advance" click 'Yes'.
Figure 1 : Journal Entry -Advance Entry
Double Entry Accounting
Double entry bookkeeping is a system of accounting in which every transaction has a corresponding positive and negative entry : debits and credits. Every transaction involves a debit entry in one account and a credit entry in another account. This means that every transaction must be recorded in two accounts; one account will be debited because it receives value and the other account will be credited because it has given value.
Figure 2: Transaction and Difference Entry
Save and submit the Journal Entry. If this document is not saved it will not be pulled in other accounting documents.
When you make a new Sales Invoice for the same customer, mention the advance in the Sales Invoice Form.
To link the Sales Invoice to the Journal Entry which mentions the advance payment entry, click on ‘Get Advances Received’. Allocate the amount of advance in the advances table. The accounting will be adjusted accordingly.
Figure 3: Receive Advance
Save and submit the Sales Invoice.
Next: Payment Request