Advance Payment from Customer

Dear Akaunting Team,

I would like to clarify an accounting issue we are facing and request your guidance.

When we receive an advance payment from a customer, we record it correctly as an advance. However, when we later make a payment to a supplier and then receive a refund or adjustment from the same supplier, the system behaviour is not aligning with standard accounting treatment.

The entries we are passing are as follows:

Payment to Supplier (Advance):
Advance to Supplier (ABC) – Debit
Bank – Credit
This correctly appears in the balance sheet as an advance to the supplier.

Amount Received Back from Supplier (ABC):
Bank – Debit
Advance to Supplier (ABC) – Credit

While the first entry is reflected correctly in the balance sheet, the second entry is showing in the income statement as a “Deposit”, which is not correct. This transaction is a reversal/adjustment of an advance and should only impact the balance sheet, not be treated as income.

Kindly advise:

The correct setup (account type/category) for advance payments to suppliers, and

How to record the supplier refund/adjustment so it does not appear in the income statement.

Your guidance on the proper configuration or workflow in Akaunting would be much appreciated.

Thank you for your support.

Record supplier advances in a Current Asset account. When you get a refund, credit the same asset account and debit the bank. This keeps the transaction off the income statement and correctly reflected on the balance sheet.