Advance payment from customer journal entry is Cash/Bank Account Debit The account representing the cash received, Unearned Revenue Account Credit The account representing the liability for the goods or services yet to be delivered. When a customer makes an advance payment for goods or services that are to be delivered in the future, this payment is recorded as a liability. This is because the business owes the goods or services to the customer.
Key Concepts
- Cash/Bank Account: The account representing the cash received.
- Unearned Revenue Account: The account representing the liability for the goods or services yet to be delivered.
Journal Entry for Advance Payment from Customer
Example Scenario
Assume a customer makes an advance payment of ₹20,000 on 01-01-2024 for services to be provided in the future.
Step-by-Step Journal Entry
- Record the Advance Payment
| Date | Account Title | Debit (INR) | Credit (INR) | Description |
|---|---|---|---|---|
| 01-01-2024 | Cash/Bank | 20,000 | Advance payment received from customer | |
| 01-01-2024 | To Unearned Revenue | 20,000 | Liability for services to be provided |
Explanation
- Debit to Cash/Bank: This increases the cash or bank account, reflecting the receipt of cash from the customer.
- Credit to Unearned Revenue: This increases the unearned revenue account, reflecting the liability to provide goods or services in the future.
Conclusion
Accurately recording advance payments from customers is crucial for maintaining precise financial records and ensuring correct liability representation. Properly managing these transactions ensures that the business’s financial position is accurately represented in the financial statements, contributing to better financial management and reporting.