In previous content, I explained about the journal entries for advance to employee. Our employee is also seller. He sells the service and today, we are talking about the journal entries of advance received against sales (physical products). So, there is big difference if you read both content.
No matter whether you sell the computer or property or shares. It is your revenue and after deducting expenses, it will be your profit or loss. Due to this, your capital will increase or decrease.
No matter whether you take advance from bank or against sale, it is your liability. Because you did not sell the product or service, we have to return this advance if we do not sell or we get sale return.
Following is the Journal Entries of Advance Against the Sales
1. When we have received advance against sales.
It will be the agreement between seller and buyer. We are keeping the books of seller. For example, seller is property dealer. Sale amount is big. So, buyer is unable to pay all the amount. Seller demands advance, so, confirm the agreement. So, buyer pays the advance against buying of his property. So, following entry will pass in the books of seller.
Cash/ Bank Account Debit
Advance Received Against Sales Account Credit
Logic of Entry : Seller has received the cash, it means, there is increase his current asset. So, every increase in current asset will be debited. This advance is unearned money because he received the money but still he did not sell the product ( In property selling case, both registry and possession is in the hand of seller at the time of taking advance from buyer). So, it is the liability of seller. If seller did not complete the agreement, he has to return advance amount to buyer. If you read my past content, my seller has returned my advance money because he was unable to sell me the property.
2. When Seller Adjust Advance Received at the Time of Actual Sale
Advance Received Against Sale Account Debit
Cash / Bank Account ( Balance Amount ) Debit
Sale Account Credit
Logic of Entry : If seller, you have already received advance in cash form, so, by debit this, we are decreasing our liability. Any decrease in liability will debit. If any balance is pending, we will receive in cash which is increase in current asset and will be debit. Sales is our revenue. All the incomes and gains are credited because it is the increase in capital. Capital is the part of liability of business. It has to return to business owner or shareholder. So, revenue is increase of liability. Every increase in the liability will be credited.
3. When Seller Return Advance Received at the Time of Cancel the Sale Deal or Sales Return
Advance Received Against Sales Account Debit
Cash / Bank Account Credit
Logic of Entry : We have debited advance received against sales because it has decrease our liability. With this, we current asset has also decreased. So, we credited cash account or bank account. Cash transferred from the pocket of seller to the pocket of buyer.
No matter whether you sell the computer or property or shares. It is your revenue and after deducting expenses, it will be your profit or loss. Due to this, your capital will increase or decrease.
No matter whether you take advance from bank or against sale, it is your liability. Because you did not sell the product or service, we have to return this advance if we do not sell or we get sale return.
Following is the Journal Entries of Advance Against the Sales
1. When we have received advance against sales.
It will be the agreement between seller and buyer. We are keeping the books of seller. For example, seller is property dealer. Sale amount is big. So, buyer is unable to pay all the amount. Seller demands advance, so, confirm the agreement. So, buyer pays the advance against buying of his property. So, following entry will pass in the books of seller.
Cash/ Bank Account Debit
Advance Received Against Sales Account Credit
Logic of Entry : Seller has received the cash, it means, there is increase his current asset. So, every increase in current asset will be debited. This advance is unearned money because he received the money but still he did not sell the product ( In property selling case, both registry and possession is in the hand of seller at the time of taking advance from buyer). So, it is the liability of seller. If seller did not complete the agreement, he has to return advance amount to buyer. If you read my past content, my seller has returned my advance money because he was unable to sell me the property.
2. When Seller Adjust Advance Received at the Time of Actual Sale
Advance Received Against Sale Account Debit
Cash / Bank Account ( Balance Amount ) Debit
Sale Account Credit
Logic of Entry : If seller, you have already received advance in cash form, so, by debit this, we are decreasing our liability. Any decrease in liability will debit. If any balance is pending, we will receive in cash which is increase in current asset and will be debit. Sales is our revenue. All the incomes and gains are credited because it is the increase in capital. Capital is the part of liability of business. It has to return to business owner or shareholder. So, revenue is increase of liability. Every increase in the liability will be credited.
3. When Seller Return Advance Received at the Time of Cancel the Sale Deal or Sales Return
Advance Received Against Sales Account Debit
Cash / Bank Account Credit
Logic of Entry : We have debited advance received against sales because it has decrease our liability. With this, we current asset has also decreased. So, we credited cash account or bank account. Cash transferred from the pocket of seller to the pocket of buyer.
