ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -An advance is a type of loan or payment in which money or goods are given before consideration is received in return; usually with the expectation of repayment or adjustment in basis by the party receiving the advance.

Detailed explanation-2: -Interest Rate This is a percentage of the loan amount that you’re charged for borrowing money. It is a re-occurring fee that you’re required to repay, in addition to the principal. The interest rate is always recorded in the promissory note.

Detailed explanation-3: -You’ll pay interest from the date you get a cash advance until you pay it back in full. The interest rate charged for cash advances is usually higher than for regular purchases. For example, the interest rate for regular purchases may be 19%, but it may be 22% for cash advances.

Detailed explanation-4: -Whenever an advance payment is made, the accounting entry is expressed as a debit to the asset Cash for the amount received. A credit also needs to be made to the liability account – something along the lines of Advance Payments, Unearned Revenue, or Customer Advances.