Advances

In general, the meaning of the word advance is to move forward or to progress. This is true too as a financial term when referring to the stock market. When the market is doing well and the price of stocks and bonds are increasing the index is said to “advance” or go up a certain number of points.

When it comes to accounting, the term advances refer to the prepayments given and/or received before the product or service for the payment has been rendered. Prepayment may come in the form of money or anything else of value accepted by the merchant. An example of this would be cash advances made by an employee.

Cash advances are allowed by many employers as part of the benefits package. Most are availed, usually, for emergency purposes. Many people don’t realize the effect of a cash advance of the employer’s accounting books. There is no problem for the employee’s personal books since it can be recorded simply as income. However, for the employer it will be recorded not simply as an expense but actually also as receivables (the service part) from the employee. If the latter part is not done, the cash advance would simply be counted as regular expense paid to the employee (income), which could lead to confusion in the future since the employee could be paid again after rendering service he has already be paid for.

Another example would be internet purchases, though this time the seller needs to list the transaction under payables/deliverables.

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