Such advances are paid out of the monthly salary or wages of the employee and must be paid back by the employee by the end of the month in full in usual cases. Difference between Zero Rated, Nil Rated, Non-GST and exempt supplies, Crucial Tax Deductions For Small Businesses, Three Golden Rules of Accounting & Examples. Payment is made in cash. We and our partners use data for Personalised ads and content, ad and content measurement, audience insights and product development. Additionally, when we receive another 70% of the total fee that we charge which is $1,400 ($2,000 x 70%), we can record another journal entry with the debit of the cash account and the credit of the service revenue account as below: In this journal entry, the $600 of unearned service revenue represents the advance payment we have recorded in the previous month. Manage Settings Hence, the debit on this account is to remove it from the balance sheet as we have already earned this amount of revenue by now. Example 2: On December 30, XYZ Ltd. received office rent from its tenant in cash of $45,000 (15,000 x 3) for the next three months, i.e., January, February, and March. The salary expense in November amount to $45,000. Employee advances require considerable vigilance by the accounting staff, because employees who have limited financial resources will tend to use the company as their personal banks, and so will be reluctant to pay back advances unless pressed to do so repeatedly. when advance payment is made to increase the expense account and decrease the asset account as discussed earlier.DateParticularsDrCrAdvance Rent PaidPrepaid Rent A/c $5,0001st January 2022Cash A/c (For rent being paid in advance) $5,000if(typeof ez_ad_units!='undefined'){ez_ad_units.push([[580,400],'audithow_com-box-4','ezslot_15',260,'0','0'])};__ez_fad_position('div-gpt-ad-audithow_com-box-4-0'); On February 1st, 2022, XYZ Co. will record the second aspect of the accounting treatment i.e. The life cycle to account for payment of rent expenses (in cash) goes through a couple of steps as shown below; Step 1 - Journal entry for rent paid (in cash) Rent A/C. Example On 10th March, XYZ Ltd paid office rent to its landlord by cheque for the same month amounting to 20,000. An advance payment is quite an involved process. Likewise, this journal entry will increase an asset on one side and decrease another asset on another side. Rent paid in advance i.e.
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