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Once the related goods or services have been delivered, the amount in this account is shifted to a revenue account. Advance receipts from customers need to be shown as liabilities on the balance sheet. Led business including sales, customer contracts, quality, safety, finance, new . Carrying amount as of the balance sheet date of proceeds that had been received in revenue related transactions that are refundable to the customers and do not meet the criteria for revenue recognition (for example, refundable membership fees). Shows it as a liability in the current balance sheet under the head "Current Liabilities". Accounts receivable is an asset in the balance sheet. Upon delivery of such goods or services, the advance payment to the customer's account will be transferred to the Revenue Account. Therefore, it makes sense to include them as revenues on the financial statements. It is initially recorded as a debit to AR and Credit to Sales (P&L), it is assumed a sale has been made that has not been paid. Definition The term advances from customers refers to money collected by a company prior to providing a product or service. As per accrual based accounting the revenue is earned at this step i.e. In certain types of business transactions, it is a requirement for the customer to pay a part of the total amount or the entire sum in advance. The journal entry will increase cash on balance sheet. For the year ended 31st December 2019, they received customer advances worth $40,000 from one customer, in the month of November. Chris Egeonu BSc,MBA,FCA,ACSI,ACTI - Head,Enterprise Banking Lagos As these assets are used they are expended and recorded on the income statement for the period in which they are incurred. Business can meet its short-term requirement with such funds. If they will be earned within one year, they should be listed as a current liability. Customer advance account is shown on the liability side of the balance sheet as the related revenue is still unearned. The inventory account is debited $4,500, which increases the balance.