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How to apply the advance payment paid after deducting TDS on a Bill?

Once an advance payment transaction is created for a supplier, it can be applied to a bill transaction for the same supplier. There are following pre-conditions for this:

  1. Advance payment and the bill transactions should be in the same financial year
  2. Advance payment transaction date should be prior to Bill date.
  3. Advance payment amount should be less than or equal to the bill amount**.
    • **Bill amount = Net total on the bill excluding taxes, i.e. the Subtotal amount.
  4. The section of TDS deduction should be same in Advance Payment and in the bill.

If the above conditions are satisfied the advance payment transaction can be linked to the bill transaction. The advance payment is linked to the bill transaction to make sure QuickBooks calculates correct TDS to be applied on the bill amount. If an advance payment is applied on a bill, the TDS amount deducted in the advance payment will be considered while calculating the TDS amount to be deducted on the bill.

Follow the steps below to link an advance payment to bill:

  1. Select + New.
  2. Click on "Bill" under Suppliers.
  3. Select a supplier for whom the advance payment was paid.
  4. Enter the bill details : Date, Line items, taxes etc.
  5. Select the appropriate TDS section under which the TDS needs to deducted (Note that in the advance payment same section should have been used).
  6. Click on Calculate TDS link.
  7. In a pop-up box the Advance Payments entered for the supplier, for the selected section will be shown.
  8. Select the advance payment to be applied on the bill (You can select more than one Advance Payment transactions to a bill, however, the total of advance payment should not exceed the bill amount.) and click 'Apply' button.
  9. TDS on the bill will get calculated considering the TDS deducted in the advance payment transaction.
  10. The advance payment used link will be shown in the bill.
  11. If you would want to unlink the advance payment from the bill click on Calculate TDS link again and make changes.
  12. Once you have made necessary changes and selection click on "Save & Close" button.

Accounting of Advance Payment Linking : QuickBooks posts the following journal entry for the bill when advance payment is linked to it:

Purchases/Expense/Inventory Asset A/c........ Dr. <Total Amount of purchase>
Accounts Payable A/C...................................Cr. <Total amount - (Advance Payment & TDS Payable) >
Advance Payment Asset A/C..........................Cr. <Advance Payment amount linked to this bill>
TDS Payable A/C...........................................Cr. <TDS amount calculated for the bill>

(Please note the journal example shown here does not consider tax)

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