It is the opposite of prepaid expense

It refers to income of future period received in advance

 

Entries

 

When we Receive Advance

Bank Dr

      To Party

 

Party Dr

    To Prepaid Income

 

Prepaid Income Dr

        To Income A/c      

 

Example

The Company entered into contract with its client A ltd for providing technical services 

As per contract,Rs 300000 was received in advance for the period Jan to March on 1 Jan

Pass Entries in books of company assuming Monthly Closing

-a-

Advance Money received

Bank   A/c   Dr   300000

    To   A    A/c     300000

(A is Advance from Customer i.e.our Current Liability)

 

At the end of January

A  A/c  Dr  100000

   To Professional Income  A/c  100000

         

At the end of February

A   A/c   Dr  100000

  To  Professional Income   A/c  100000

 

At the end of March

 A  A/c   Dr   100000

   To Professional Income   A/c  100000

-ea-

  1. Accounts and Finance
  2. Step 3 Passing Book Closure Entries
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CA Maninder Singh's photo - Expert in Practical Accounts, Taxation and Efiling
CA Maninder Singh
CA Maninder Singh is a Chartered Accountant for the past 6 years. He provides courses for Practical Accounts, Taxation and Efiling at teachoo.com .
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