Advance payments are recorded as assets on a company's balance sheet.

As these assets are used, they

are expended and recorded on the income statement for the period in which they are incurred.

Advance payments are generally made in two situations. They can be applied to a sum of money
provided before a contractually agreed-upon due date, or they may be required before the receipt of
the requested goods or services.

If a corporation is required to make an advance payment, it is recorded as a prepaid expense on the

balance sheet under the accrual accounting method.

Suppliers to which a full advanced payment is issued must provide a complete and final invoice (or
Proforma invoice) for the full amount of the advance payment prior to the issuance of payment.    The
invoice must contain the confirmation of total cost, including tax, freight, handling, etc.   Suppliers are
discouraged from providing a Proforma as an “estimate” and later billing the Institute in full.  Payment
Services will consider such subsequent invoices as “duplicates” and not render additional payment to
the supplier.   

Suppliers to which a partial advanced payment is issued (i.e. down payments, progress payments,
deposits, etc.) must provide a complete invoice (or Proforma invoice) for the amount equal to the
fractional portion of the order, including the proportional amount of sales tax and
shipping/freight/handling prior to the issuance of the partial advance payment.   Sales tax should not be
held back and billed at the final payment, but should be included on each progress or partial invoice for
the appropriate amount due at the time of billing

Advance to Suppliers (also referred to as Supplier Prepayments) is similar in nature to any prepaid
expense that a company incurs.

This implies that the cash payment is made earlier than the date when the product or the service is
actually received.

An advance payment is seen as expenditure spent and both sides need to qualify the payment . It will
not be qualified as an expense if the goods or services are delivered and invoiced at a later date. In this
case, you’re not seeing any benefit of paying in advance.