Advances

An advance is a prepayment which is remitted to an organization in anticipation of future reimbursable expenditures or expenses.

An example is an annual premium paid to an insurance company for casualty insurance.

For the organization receiving the advance, upon receipt it is not considered revenue but instead a liability, as performance has not yet taken place; as each period (usually a month) passes a portion of the liability is reduced and credited to revenue. Conversely, for the organization paying the advance, upon payment it is not considered an expense but instead it is a current asset; as each period passes a portion of the asset is reduced and charged to expenses.