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Customer Advances and Progress Payments for Long-term Contracts or Programs $ The Main Responsibilities. Is advances from customers a current asset? Connect with your goals and change lives with Fresenius Medical Care North America. if(typeof ez_ad_units!='undefined'){ez_ad_units.push([[250,250],'accountingcapital_com-leader-1','ezslot_4',630,'0','0'])};__ez_fad_position('div-gpt-ad-accountingcapital_com-leader-1-0'); Following are the steps and the associated timeline to book the journal entry for advance received from a customer. Some customers pay in advance to ensure the availability of the product on the exact date. When companies collect this money, the intention is to eventually provide the product or service paid for by the customer. The journal entry will increase cash on balance sheet. They need to record it as the unearned revenue which is the current liabilities. Assisting with any tax issues, familiar with balance sheets ,general ledger and . Therefore, customer advances cannot be classified as revenues, simply because they do not fulfill the revenue recognition criteria. Customer advance account is shown on the liability side of the balance sheet as the related revenue is still unearned.if(typeof ez_ad_units!='undefined'){ez_ad_units.push([[250,250],'accountingcapital_com-large-mobile-banner-2','ezslot_9',601,'0','0'])};__ez_fad_position('div-gpt-ad-accountingcapital_com-large-mobile-banner-2-0'); Step 2 When an invoice is sent to the customer. It prevents the customers from placing the order and canceling it later. The journal entry is debiting cash and credit unearned revenue. It happens when the products are in high demand, and they may run out of stock in the future. Sajad Hameed - Senior Financial Accountant - LUBPLUS GmbH | LinkedIn Your email address will not be published. When the product or service is rendered, the balance in unearned revenue decreases, and there is a corresponding increase to revenues. It happens when the products are in high demand, and they may run out of stock in the future.