Category Archives: MoneyWorks

Software: MoneyWorks accounting software

Advance payment to the supplier (without using the purchase order process) is quite similar to the advances received from a customer which we have discussed in our earlier post. The steps required for paying advances to a supplier are:

1. Record the purchase invoice for advance payment from the supplier.
2. Made payment to the supplier without offsetting the purchase invoice. That is, leave it as an overpayment.
3. Record the actual (or final) purchase invoice from the supplier and deduct the advances paid.
4. Paid supplier and offset the advances paid at the same time.

The purchase invoice of the advance payment which we listed above (1) is to facilitate the overpayment process. You have to record the invoice even if you are not receiving any invoices from the supplier. You should create an item and associate it with the advance payment to the supplier account (which is a current asset account type) if you are tracking of inventory, and add this item to the purchase invoice. The purchase invoice debits advance payment to the supplier and credit the accounts payable account.

A cheque number, electronic transfer reference number, or an internal reference number can be used as the purchase invoice reference number if you are not receiving any invoices from the supplier.

Double entry:
Debit Advance payment to the supplier
Debit GST Paid (Input)
Credit Accounts Payable

Proceed with the payment to supplier once the advance invoice has posted. DO NOT select the advance payment invoice during payment process so to force it to record as an overpayment.

Double entry:
Debit Accounts Payable
Credit Bank

You can use the advance payment to supplier account or create a dummy current asset account such as payment in transit in the ‘suspense a/c’ field to facilitate the overpayment process. MoneyWorks create two dummy purchase invoices automatically when overpayment to supplier has recorded; one debits the account listed in the suspense account and credit the accounts payable, and another reverse it.

Double entry:
Purchase Invoice 1:
Debit Payment in transit (dummy)
Debit GST Paid (input)
Credit Accounts Payable

Purchase Invoice 2:
Debit Accounts Payable
Credit Payment in transit (dummy)
Credit GST Paid (input)

The advance payment invoice and the overpayment are both showing in the account payable ageing report which eases the tracking of the advance payment.

The advance payment to the supplier item with a negative value has to add to the actual invoice received from the supplier; with a negative value, this entry credit and offset the advance payment to the supplier account.

Double entry:
Debit Stock on hand
Debit GST Paid (input)
Credit Advance payment to the supplier
Credit Accounts Payable

Then, offset the advance payment to the supplier and invoice, which you have entered earlier, together when paying the balances.

Double entry:
Debit Accounts Payable
Credit Bank

Note for multiple currencies user:
There might be differences in the advance payment to the supplier account if the exchange rate used in the advance payment invoice and the actual invoice are different. You have to pass a general journal to clear the balances in the advance payment to the supplier to the exchange gain/loss account.