Accounting glossary
Advance receipt
An advance receipt is money a customer pays you before you have supplied the goods or services or raised the invoice. In your books it is a liability until the sale happens, and under GST an advance for services is taxed when you receive it, while an advance for goods is not.
Why it matters to your business
Advances are good for cash flow and easy to lose track of. If an advance is entered as a sale, your income is overstated. If it is left unlinked, the customer’s account shows both an old advance and an unpaid invoice, and your reminders ask for money already paid. Keeping each advance against its customer until the invoice is raised keeps both your books and your follow-ups right.
How it works
- The customer pays before the sale. You record a receipt and give a receipt voucher.
- The amount sits on the customer’s account as a credit balance.
- When you raise the tax invoice, you set the advance against it. The customer then owes only the balance.
- For services, GST on the advance is paid for the month of receipt, and the invoice later carries the tax on the remaining value.
An example
A furniture maker takes ₹20,000 from a customer when the order is booked, for a sofa that will cost ₹59,000 with GST. No GST is due on the advance because it is for goods. On delivery the invoice is raised for ₹59,000, the advance is set against it, and the customer pays ₹39,000.
Common mistakes
- Recording the advance as sales income.
- Forgetting GST on advances for services.
- Raising the invoice without adjusting the advance, so the customer is chased for the full amount.
Questions about Advance receipt
Is GST payable on an advance?
On an advance for services, yes. GST is due for the month you receive it. On an advance for goods, no. Since 15 November 2017 the tax on goods is paid only when the invoice is issued.
Which document do I give for an advance?
A receipt voucher, which shows the amount received and, for services, the tax in it. If the sale is later cancelled and you return the money, you issue a refund voucher.
Where does an advance appear in the balance sheet?
Under current liabilities, as advances from customers. It becomes income only when you make the sale and set the advance against the invoice.
How is an advance shown in GSTR-1?
Advances received for services on which no invoice was issued in the same month go in the advances table, and are adjusted in the month the invoice is raised.
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