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rkumar1
Level 1

Advance Customer Deposit

Hi. Fellow colleague has recorded Cash Advance as income and I want to adjust this. Since the whole project billed was for e.g. $1 million and $0.2 million was cash advance - can $0.2 million be adjusted with the expenses incurred? What will be the adjusting journal entry?

2 Comments 2
Rustler
Level 15

Advance Customer Deposit

Assuming the 200K is posted to an income account

create a liability account called customer deposit or something like that , then do a journal entry

debit income, 200K
credit customer deposit, 200K

qbteachmt
Level 15

Advance Customer Deposit

If you are a cash basis entity, then this is Income and you are not allowed to hold liability.

 

Make a prepayment Service item and use it on a Customer Sales Receipt. That service links to income or liability, to meet your accounting need. Stop trying to use JE for customer activities; you use Customer transactions for customer activities.

 

The Prepayment is not Adjusted as you incur costs. The prepayment is applied to the Invoices for the amounts owed, when you are ready to show you are applying their prepaid funds as value, by putting the prepayment service on a Credit Memo. You charge the customer for income, but you can show you don't expect that all as new money.

 

If the prepayment is liability, the credit memo clears that liability. If the prepayment was already required to be treated as income, this credit memo treats the sale as a sort of Discounted value with the use of the prepayment item, so that it reduces gross revenue on the actual sale.

 

And now you get to control for sales tax status, as well.

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