Most businesses receive or give advance payments from customers and to suppliers respectively. This advance appears in the accounts for a very short period of time say a week or a fortnight, after which this amount is adjusted automatically to the sales invoice or purchase invoice.
Now, when entering an advance payment to the Accounts receivable or Accounts payable account which is more than their respective total account balance outstanding, irrespective of individual customer or supplier balance, the summary page shows the Assets and Liabilities as a negative value.
the above image shows the Accounts receivable page. Here the total outstanding due under the receivables was 34077.50 and the new advance amount 50000.
the above image shows the Accounts payable page. Here a payment of 45000 was made which adjusted with the outstanding and has a balance 31200 which is paid in advance to the supplier.
Now, my question is why cannot the excess amount be automatically adjusted to a sub-account under the Accounts payable or Accounts receivable, say To-be-billed, which would not reflect on the Assets or Liabilities total.
Or maybe a provision to manually set the same when receiving or spending money under cash accounts to not reflect on the Assets or Liabilities total.
Please note that the advance payment is not a deposit which can be recorded under a special account for the customer or supplier. Also, most business do not make a sales invoice in advance, they just make a proforma invoice or sales quote against which the payment is received. So suggestion to make a Sales invoice at the time of receiving a payment or a purchase invoice before giving out a payment is not a solution.
thats bad. would have been great if it was reintroduced with any improvements.
that is true. but it is a lot of work considering creating new accounts for all the customers and suppliers, then recording the payments separately, then allocating the payments to invoices. advances are a frequent activity in a business, deposits are not. special accounts for deposits are acceptable.
i believe reducing the work should be the way forward.
This depends on the practices within an industry and the policies of a company. In some industries and companies, deposits/advances given or received are an everyday occurrence. In others, they never happen.
The current arrangement was implemented specifically to reduce the workload. All payments to suppliers and receipts from customers are now entered in a single fashion, regardless of what they are for: invoice payment, advance, deposit, refund, adjustment for defective products, service credit, etc. No one needs to think about or remember different processes. Everything is much more intuitive.
i understand. my concern was the Assets going on the negative side in the summary. so if there was a way to control what affects the summary total and showing the excess outstanding as a sub account it would be better.
considering this an everyday occurrence with the many customers, using a special account just adds to the work.
also, after recording an advance in a special account, showing the advance adjusted towards the invoice as a line item does not look professional. maybe showing it along with the totals would still be better.
I guess that’s a matter of opinion. Personally, I think a line item explicitly listing the application of a deposit is highly professional, thorough, and detailed. I actually think the current method that just shows a credit being applied in the totals section, without any further explanation, could be confusing to customers. For what it’s worth, I actually liked the former account structure better, with Customer credits and Supplier credits showing separately. But I also like the present standardized entry flow better.
At one point, I know @lubos considered using the current, uniform entry procedure, but having the reported balances toggle between Accounts receivable/payable and Customer/Supplier credits depending on whether they were positive or negative. I don’t know what his current thinking is.
there is another solution to this is to create an account in Current asset called Advance to Suppliers with activating control of Account and choose Suppliers, once purchase invoice is made make a Journal Voucher and transfer to Accounts Payable. the same way you can do for Advance received from customer create an account in current liability with activating control account and choose customers.
this way will solve this issue and your account ending balance will be according to account nature
i appreciate your suggestion. but your suggestion and the method of using a special account to handle advances needs more or less the same additional work.
anyway, we will see if there are any improvements regarding handling the customer/supplier credits better.
