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How do I record an advance payment made to a supplier with TDS withheld?

In order to create an advance payment paid to supplier with TDS deduction QuickBooks Online India has provided a separate option named Advance Payment.

If TDS is not being deducted in the advance payment, then the 'Expense' or 'Cheque' option should be used. 'Advance Payment' option should be used only when TDS is deducted on the advance payment paid to the supplier.

To create an advance payment transaction follow the steps given below:

  1. Select + New.
  2. Click on 'Advance Payment' option under Suppliers
  3. Select the supplier from the drop down for "Payee"
  4. Select the account through which the payment is made in "Choose an account" drop down.
  5. Enter the Payment Date.
  6. Enter the total amount (including TDS) in the 'Amount box'
  7. In TDS Amount section select the section under which the TDS will be deducted & Click on 'Calculate TDS' link
  8. Based on the transactions done for the supplier during the financial year and amount of TDS already deducted for him, QuickBooks will calculate and populate the TDS amount in the box. If you would like to change the amount you can edit and change the amount.
  9. Click on Save & Close button to save this transaction.

Accounting of 'Advance Payment' Transaction : QuickBooks creates 'Advance Payment Asset' account to post the 'Advance Payment' amount. When this transaction is saved QuickBooks passes the following journal entry:

Advance Payment Asset account ........... Dr. <Total Amount>
Bank Account ........................................Cr. <Amount Paid>
TDS Payable Account.............................Cr. <TDS Deducted Amount>

You can note that Accounts Payable is not used in the above transaction and that is why the Advance Payment paid to the supplier does not shown in the available credit while making payment to the supplier.

Please visit "How to apply the advance payment paid after deducting TDS on a Bill?" article for the steps to link an advance payment with a bill.

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