Contract Liabilities
Also called: Advance from Customers, Deferred Revenue, Unearned Income
Money customers paid before you delivered the goods or trip, on the Balance Sheet. Becomes income when the service is delivered.
In detail
A Contract Liability is money received from a customer before the service is delivered, which is the normal way a travel business works: a trek deposit in Kartik for a trip in Mangsir. Until the trek happens the business owes the customer either the service or a refund, so the receipt is a liability, not income. Under NFRS 15 the amount is moved to Rendering of Services only when the service is performed. In BRAccount a customer advance is recorded as a Payment Entry of type Receive with no invoice, with this ledger as the advance account, and is later allocated against the Sales Invoice. Recording advances straight to income overstates revenue and VAT before the sale exists.
Formula
Contract Liabilities = Advances received - Amounts recognised as revenue on delivery
Accounting entry
| Account | Debit | Credit |
|---|---|---|
| Bank Account | Rs 50,000 | |
| Contract Liabilities | Rs 50,000 |
How to record it in BRAccount
- 01Go to Payments > Payment Entry > New, choose Receive and pick the customer.
- 02Enter the bank account and the advance amount; leave the invoice references empty.
- 03In the advance account field choose Contract Liabilities and submit. The entry below posts.
- 04When the trip is delivered, raise the Sales Invoice from Invoicing > Sales Invoice > New.
- 05In the Advances section of the invoice, fetch and allocate the advance; the liability clears against Debtors.
When to use it
Post by Payment Entry for customer advances. Clear it when the Sales Invoice is raised for the completed trip.
Example from the demo books
Dr Bank Account Rs 50,000, Cr Contract Liabilities Rs 50,000 for a 50 percent advance on an Everest Base Camp trek in Kartik.