Recording a customer advance

Accurately recording advance payments from clients is essential for maintaining your financial books and ensuring tax compliance. This guide provides a step-by-step approach to managing advance payments in Wafeq, covering everything from creating customer advances to applying them to future invoices.

Additionally, we explore handling tax implications and bank fees, offering a complete overview to ensure your accounting practices are thorough, efficient, and compliant with tax regulations. Follow these detailed instructions to streamline your advance payment processes.

Step-by-step instructions

1. On the left side menu, go to Customer payments.
2. Click on Create payment, then choose Invoices payment / advance.
3. Select your Customer in the dropdown.
4. In the Paid through dropdown, select the bank account where you received the payment. The payment currency will automatically be selected as the bank account's currency.
5. In the Amount paid, enter the amount you received from your customer in your bank account.
6. Select the date you received the payment.
7. In Payment type, select Advance payment.
8. Click Save.

Here's an example of a customer advance:

Applying the advance to a customer invoice

When you create a customer advance from a payment, Wafeq will automatically create a Credit Note for the customer. You can find the credit note by going to Credit notes in the left side menu.

You can then apply the credit note to an invoice.

Here's an example of a credit note created from a customer advance:

Recording Advance Payments with Tax Considerations

Step 1: Create a Customer Prepayments Account

Establish a liabilities account named Customer Prepayments to track received prepayments.

Step 2: Issue a Cash Invoice for the Advance Payment

• Generate a cash invoice for the advance payment, specifying the Customer Prepayments account.
• Choose the correct tax rate and determine if the tax is inclusive or exclusive.

Step 3: Finalize the Invoice

When finalizing the sale:

• Include all sale items on the invoice.
• Add a negative line item for the advance payment, naming it Prepayment / Advance Payment and refer to the initial invoice number.
• Adjust the tax amount based on the initial cash invoice and assign it to the Customer Prepayments account.

Ensure consistency in tax models between the advance payment and the final invoice.

Managing Bank Fees

• For bank fees included in the payment, adjust during reconciliation by booking the difference to a Bank Fees account.
• If fees are separate, record them via a manual journal entry or directly in the bank transactions page, categorizing them under Bank Fees account.