Difference between Loan and Advance

>> February 8, 2009


Many accountants think that loan and advance is almost same . Both means when a person borrows the money from other , it is called loan or advance . But , If you will deep study of this , then you found many differences between loan and advances .

Loan means debt for personal or business purposes in which loan taker is responsible to return his taken money with interest .

Advance is to get money from those , which have our mutual relationship .

Suppose

  • Employee can get salary in advance from his employer

Advance transaction will arise due to relationship between employer and employee .

  • Debtor can give advance money for purchasing any future goods from his supplier or creditor . or Supplier can demand advance money for passing his order .

Rohan has to buy of Goods $ 50000 in 5/5/2009 but he pay to Sham $ 50000 in advance in 5/3/2009 .

Loan is just Contract between Lender and borrower in which they fix their terms and condition .

What is rate of interest on loan , what is the installment amount , when installment of loan will given , What penalty will be levied if , installment is not given at proper time and many more conditions they can fix .

But in advance , term and condition is fix on their relationship , a good relationship with employer , you can get advance salary with 0% interest rate .

Sometime Imprest cash and call in advance is also deemed advance but these are not loan items .

So accountants should know also basic difference between them so , that they can proper treat in accounting .

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