Advance from Customer
What is an Advance from Customer?
An advance from a customer is where a customer pays money to the business before receiving goods or services.
![afc 1](https://seeaccountingnow.online/wp-content/uploads/2021/08/afc-1-1.jpg)
How it Works
Sometimes, a customer will order a product or service.
![afc 2](https://seeaccountingnow.online/wp-content/uploads/2021/08/afc-2-1.jpg)
However, the business may perceive the customer as a credit risk and insist on payment at the time.
![afc 3](https://seeaccountingnow.online/wp-content/uploads/2021/08/afc-3-1.jpg)
Then the customer takes delivery of the goods or services later.
![afc 4](https://seeaccountingnow.online/wp-content/uploads/2021/08/afc-4-1.jpg)
With this type of transaction, the sale is not recognized until delivery.
![afc 5](https://seeaccountingnow.online/wp-content/uploads/2021/08/afc-5-1.jpg)
Journal Entries
To record a customer advance, you use a customer advances account.
![afc 6](https://seeaccountingnow.online/wp-content/uploads/2021/08/afc-6.jpg)
The customer advances account is a liability account.
![afc 7](https://seeaccountingnow.online/wp-content/uploads/2021/08/afc-7.jpg)
Like other liability accounts, it shows money the business owes.
![afc 8](https://seeaccountingnow.online/wp-content/uploads/2021/08/afc-8.jpg)
You show that it is money owed, because technically, until the business ships the product, the money still belongs to the customer.
![afc 9](https://seeaccountingnow.online/wp-content/uploads/2021/08/afc-9.jpg)
To record the payment, you credit the customer advances account.
![afc 10](https://seeaccountingnow.online/wp-content/uploads/2021/08/afc-10.jpg)
This shows the money involved in the transaction has come from customer advances.
![afc 11](https://seeaccountingnow.online/wp-content/uploads/2021/08/afc-11.jpg)
After that, you debit the cash account.
![afc 12](https://seeaccountingnow.online/wp-content/uploads/2021/08/afc-12.jpg)
This shows the money was deposited in the bank
![afc 13](https://seeaccountingnow.online/wp-content/uploads/2021/08/afc-13.jpg)
Later on, the business will deliver the product to the customer.
![afc 14](https://seeaccountingnow.online/wp-content/uploads/2021/08/afc-14.jpg)
This is when the sale is recognized.
![afc 15](https://seeaccountingnow.online/wp-content/uploads/2021/08/afc-15.jpg)
If this was a normal sale, money would come from sales and go to checking..
![afc 16](https://seeaccountingnow.online/wp-content/uploads/2021/08/afc-16.jpg)
In this case, though, the money came from customer advances and went to the bank earlier on.
![afc 17](https://seeaccountingnow.online/wp-content/uploads/2021/08/afc-17.jpg)
So now all you need to do is offset the customer advances account
![afc 18](https://seeaccountingnow.online/wp-content/uploads/2021/08/afc-18.jpg)
To do this, you credit the sales account as if it was a normal sale.
![afc 19](https://seeaccountingnow.online/wp-content/uploads/2021/08/afc-19.jpg)
This shows the value involved has come from sales.
![afc 20](https://seeaccountingnow.online/wp-content/uploads/2021/08/afc-20.jpg)
After that, you debit the customer advances account.
![afc 21](https://seeaccountingnow.online/wp-content/uploads/2021/08/afc-21.jpg)
This shows you have assigned the value to customer advances.
![afc 22](https://seeaccountingnow.online/wp-content/uploads/2021/08/afc-22.jpg)
By debiting the customer advances account, you offset the credit entry made earlier, effectively taking the account out of the mix.
![afc 23](https://seeaccountingnow.online/wp-content/uploads/2021/08/afc-23.jpg)
After this, your accounts will show that money was received from sales and went to the bank.
![afc 24](https://seeaccountingnow.online/wp-content/uploads/2021/08/afc-24.jpg)