An advance payment, or simply an advance, is the part of a
contract
A contract is an agreement that specifies certain legally enforceable rights and obligations pertaining to two or more parties. A contract typically involves consent to transfer of goods, services, money, or promise to transfer any of thos ...
ually due sum that is paid or received in advance for goods or services, while the
balance
Balance may refer to:
Common meanings
* Balance (ability) in biomechanics
* Balance (accounting)
* Balance or weighing scale
* Balance, as in equality (mathematics) or equilibrium
Arts and entertainment Film
* Balance (1983 film), ''Balance'' ( ...
included in the
invoice
An invoice, bill, tab, or bill of costs is a commercial document that includes an itemized list of goods or services furnished by a seller to a buyer relating to a sale transaction, that usually specifies the price and terms of sale, quanti ...
will only follow the delivery. The term "advance" may also refer to a
loan
In finance, a loan is the tender of money by one party to another with an agreement to pay it back. The recipient, or borrower, incurs a debt and is usually required to pay interest for the use of the money.
The document evidencing the deb ...
.
[Morrison Foerster]
You Say Advance, I Say Repay – What Does the Court of Appeal Say? Clarification by the Court of Appeal (England and Wales) on Contracts
published 27 November 2018, accessed 11 November 2023
Under
UK social security law, an advance payment may also be made to a person in receipt of
Universal Credit
Universal Credit is a United Kingdom based Welfare state in the United Kingdom, social security payment. It is Means test, means-tested and is replacing and combining six benefits, for working-age households with a low income: income-related Emp ...
.
Accounting treatment
Advance payments are recorded as a
prepaid expense
In accounting, a deferral is any account where the income or expense is not recognised until a future date.
In accounting, deferral refers to the recognition of revenue or expenses at a later time than when the cash transaction occurs. This c ...
in
accrual accounting
In accounting and finance, an accrual is an asset or liability that represents revenue or expenses that are receivable or payable but which have not yet been paid.
In accrual accounting, the term accrued revenue refers to income that is recogni ...
for the entity issuing the advance. Advanced payments are recorded as assets on the
balance sheet
In financial accounting, a balance sheet (also known as statement of financial position or statement of financial condition) is a summary of the financial balances of an individual or organization, whether it be a sole proprietorship, a business ...
. As these assets are used they are expended and recorded on the income statement for the period in which they are incurred.
Insurance
Insurance is a means of protection from financial loss in which, in exchange for a fee, a party agrees to compensate another party in the event of a certain loss, damage, or injury. It is a form of risk management, primarily used to protect ...
is a common prepaid asset, which will only be a prepaid asset because it is a proactive measure to protect business from unforeseen events.
Case law
Advance payments made as a loan are generally repayable but this is not always the case. In ''Leibson Corporation and Others v TOC Investments Corporation and Others'', an
English Court of Appeal
The Court of Appeal (formally "His Majesty's Court of Appeal in England", commonly cited as "CA", "EWCA" or "CoA") is the highest court within the Senior Courts of England and Wales, and second in the legal system of England and Wales only to ...
case in 2018,
[ 018EWCA Civ 763, 17 April 2018] it was established following principles of contractual interpretation that, in the absence of any specific language to the contrary, an "advance" is not always repayable.
See also
*
Advance against royalties
In the field of intellectual property licensing, an advance against royalties is a payment made by the licensee to the licensor at the start of the period of licensing (usually immediately upon contract, or on delivery of the property being lice ...
*
Chicago Options Associates
*
Pay or play contract
*
Prepaid expense
In accounting, a deferral is any account where the income or expense is not recognised until a future date.
In accounting, deferral refers to the recognition of revenue or expenses at a later time than when the cash transaction occurs. This c ...
*
Signing bonus
A signing bonus or sign-on bonus is a sum of money paid to a new employee (including a professional sports person) by a company as an incentive to join that company. They are often given as a way of making a compensation package more attractive ...
References
External links
Dictionary of Small Business definition: "advance payment"
Expense
Asset
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