24 October 2024
Advance paid for capital expenses but some part paid is irrecoverable, after receving services or material. what will be the treatment in accounts
26 October 2024
When dealing with advances paid for capital expenses where a portion is irrecoverable after receiving services or materials, the accounting treatment involves a few steps:
Initial Advance Payment: When the advance is paid, it is recorded as a debit to an asset account (e.g., "Capital Work in Progress" or "Prepaid Expenses") and a credit to cash/bank. Debit: Capital Work in Progress/Prepaid Expenses Credit: Cash/Bank
Receiving Services/Materials: Upon receiving the services or materials, the advance should be reclassified to the appropriate fixed asset account. If the entire advance was recoverable, you would debit the fixed asset account and credit the advance account. Debit: Fixed Asset (e.g., Equipment, Building) Credit: Capital Work in Progress/Prepaid Expenses
Recording Irrecoverable Amount: If part of the advance is deemed irrecoverable (e.g., it does not result in a tangible asset), you need to recognize this loss. The irrecoverable amount should be recorded as an expense. This could go to a loss account. Debit: Loss on Irrecoverable Advances/Expense Account Credit: Capital Work in Progress/Prepaid Expenses
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