Advance in a Separate Party Account
Advance in a Separate Party Account is fully supported and stable in version 16. The system lets you book advances received from customers and advances paid to suppliers in separate advance accounts for each party. This is better than adjusting them directly against Accounts Receivable or Accounts Payable. This makes accounting easier to understand and makes sure that standard accounting practices are followed.
In version 16 of ERPNext:
- Liabilities include customer advances.
- Supplier Advances are listed as Assets
- Payment Entry is the only way to handle these advance postings to make sure the ledger is correct and can be traced.
This method helps businesses clearly separate open receivables and payables from unadjusted advances, which makes financial statements more accurate and easier to audit.
Please note: Advance Accounts can only be used in Company Currency. Separate advance accounts do not support multi-currency advance balances, which makes sure that financial reports are always the same.
Requirements
You need to set up the necessary advance accounts and settings ahead of time in ERPNext v16 in order to use this feature.
You need to make these things first in order to use this feature:
- A Receivable-type account under Liability for Customer Advances, which stands for money that has been received but not yet earned.
- A Payable-type account under Assets for Supplier Advances, which shows money that has been paid in advance for goods or services that haven’t been received yet.
In the Chart of Accounts, these accounts should be made with clear names, like this:
- Customer Advances (Debt)
- Supplier Advances (Asset)
Keep the above accounts in:
Go to the Company > Accounts > Advance Payments section
Here, you need to clearly map:
- The Customer Advance Account (Liability)
- The Asset: Supplier Advance Account
This mapping makes sure that ERPNext always picks the right account for advance payments.
How to Make Advance Payments for Assets and Liabilities
In ERPNext v16, you can make advance payments either from an Order or by making a Payment Entry by hand.
After you send in a Sales Order or Purchase Order, you will be able to make a Payment against it. You can also make a new Payment Entry by hand and fill in the necessary information, such as the Party, Payment Type, and references.
To make an advance payment on a sales order, follow these steps:
Click on the Sales Order and then
- Make → Payment Entry
This automatically connects the Payment Entry to the Sales Order and sets the Party’s information.
Set the necessary information, such as:
- Type of payment (Receive for customer advances)
- Date of Posting
- Method of Payment
- Total Amount Paid
Then keep the payment entry.
When you save, the system will automatically update the Paid To / Paid From account with the advance account kept in the Company master instead of the usual Receivable or Payable account.
This makes sure that the advance is parked in the right Liability or Asset account.
To post the accounting entries, send in the Payment Entry.
After it is submitted, the advance amount shows up as a separate line on the balance sheet and can be used for future allocations.
Putting Advance on Invoices
In ERPNext v16, allocating advances booked in separate party accounts works the same way as regular advance payments.
When you make a Sales Invoice or a Purchase Invoice:
- You can find the advance in the Advance Allocation section.
- You can use the advance to pay for the whole invoice or just part of it.
- When the allocation is done, the balance is moved from the advance account to the right Receivable or Payable account.
Limits
- Right now, only Customer and Supplier party types can use this kind of advance booking.
- It doesn’t work for other types of parties, like employees or shareholders.
- Company Currency must be used to keep advance accounts.
- You can’t use Journal Entries to make advances; you have to use Payment Entry.
