Advance - Term Overview

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The advance is the payment or collection of a commercial operation at a time prior to the delivery of the merchandise or the provision of the service. That is, the advance is made before the main transaction is carried out.

Let's look at an example to understand it better: A company purchases merchandise from its supplier on August 1 for an amount of 1,000 monetary units. In addition, on July 15 he paid 200 monetary units as an advance. In this example we find, on the one hand, the main operation, which is the acquisition of merchandise for a total of 1,000 monetary units as of August 1.

On the other hand, there is an advance of 200 currency units on July 15, that is, on a date prior to the main operation. Finally, on August 1, the company will pay its supplier 800 monetary units, since 200 you had already paid in advance. The total payment is 1,000 monetary units, distributed between July 15 (200) and August 1 (800). It's important to note that the advance will have to be deducted from the main payment.

Types of advances

There are different classifications of advances. The two main ones will be analyzed here:

For the amount paid

- Partial advance: The advance represents a part of the total of the main operation. If the main transaction is 1,000 currency units, a partial advance would be, for example, 100 currency units.
- Total advance: The advance represents the total of the main operation. Following the previous example, the total advance would be 1,000 currency units, coinciding with the main operation.

Who is making the advance

- Customer advance: Assuming company A, customer advance occurs when company A makes a sale to a customer and the customer pays part (or all) in advance. For the client, this advance will be an advance to suppliers.
- Advance to suppliers: Assuming company A, the advance to suppliers occurs when company A makes a purchase from a supplier and company A pays a part (or all) of it in advance. For the supplier, this advance will be an advance from customers

As can be seen, the same advance is classified differently depending on the perspective from which it's analyzed.

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