What is the difference between advance payment and prepaid revenue?

Indeed, Unearned revenue and deferred revenue have the same meaning, albeit the difference in the choice of words. Basically, both terms apply to the same accounting concepts and embody the same characteristics.

Both unearned revenue and deferred revenue are characterized as revenue or profit for a particular company that supplies goods or services, but they are listed as liabilities in the accounting books because the said income or revenue is considered as not yet earned or recognized. In this situation, there is a pending action or further transaction to be done before the income or profit is considered to be an asset.

Unearned or deferred revenue happens when payment for a particular good or service is given to the company who provides it but, at the same time, the company doesn’t provide the good or service at that particular time but at a later date. This portrays a one-way transaction at this specific time. Only after the good or service is supplied will the transaction be considered complete. At the same time, the company can list the payment as part of their revenue or income.

When deferred income occurs, there is an agreement between two parties (the company and the client) that the good or service will be given due to the advancement of income. The client expects to receive a service or good in the future, and the company is under obligation to fulfill its end of the bargain in providing the good or service before it can accredit the payment as part of its revenue. Deferred income, at the moment it is given to the company and at the point that the good or service is supplied, is listed as a liability in the accounting books.

Deferred income also exists in subscriptions and memberships wherein the subscribers pay a certain amount of money in advance to receive goods or services (like licenses) from a particular company. The company, upon receiving payment, provides the subscriber with the goods or services depending on the duration or options that the subscriber indicated in the request.

One advantage with deferred revenue on the part of the company is that it receives income despite treating it as a liability. The income serves as a temporary resource if there is a shortage in cash flow. On the part of the client, deferred income is advantageous if the client wants a particular good or service in advance. For most people, paying forward gives the luxury of eliminating unwanted or unforeseen credit. Some people also want advance payments so they can budget their money better.

The disadvantage of this scheme is when the company fails to complete the transaction or the client feels that the company failed to provide the wanted good or service. There might be problems if there is no compromise between the client and the company to complete the transaction for both sides.

On Sum,

1.Deferred and unearned revenue is the same accounting principle in Accrual Accounting. The main concept is that a payment is made in advance before a good or service is delivered or executed.2.Deferred or unearned revenue is listed as a liability in the accounting books until the good or service is given to the client. After completing the transaction, the income shifts to the other side of the accounting column and is listed as an asset.

Basically, advance payment & prepaid revenue relates to two different stakeholders in an organisation.

In particular, advance payments relates to suppliers in an organisation. Advance payments are payments made by an organisation to its suppliers prior to receipt of materials or consumption of services. Hense, mostly, the advance payment are short-term assets of the organisation. 

Prepaid revenues are payments received by an organisation from its customers prior to delivering goods or rendering the services. As such, prepaid revenues considered as a liability.

Agree with the elaborated answers given by Ms. Ishani and Ms.Ghada. nothing left to add to them I believe. thanks.

Advance payment against the Assets/Expenes for the business. For example% or% down payment for the apartment/flats which we have bought. On the other hand the Buyer consider this% or% down payment as Prepaid Revenue/Unearned Renveue.

Prepaid Revenues

Prepaid revenues, also referred to as unearned revenues, are prepayments that a business receives from its customers for future delivery of goods or services. Following the revenue recognition principle, businesses cannot record customer prepayments as recognized revenues until sales to customers are completed. Examples of prepaid revenues include airline ticket sales before flight services or school tuition received during registration. Holding customer payments, a business is liable for the future transfer of goods or serves. Thus, prepaid revenues are liabilities for businesses, and become earned revenues over time as they complete the intended sales.

Advance Payments/Prepaid Expenses

Advance Payments/Prepaid expenses are future expenses that a business pays for in advance before it actually incurs them, such as insurance coverage for next year or rent paid for next month. Before prepaid expenses are consumed, businesses consider them assets that can provide future benefits. Prepaid expenses expire either with the passage of time or through use and consumption. In other words, prepaid expenses as assets are gradually used up as a business incurs the related expenses over time.

Advance payment is for customer perspective of paying goods / services before the service or receipt  while prepaid revenue reflects the seller outlook on its sales.

Prepayment is used more for debt.

‘I have to make a prepayment on my loan before the due date’Advanced payment is more used for a payment you are receiving.‘I will have the money by then because I have asked work for an advanced payment’

Simply,

Advance payment by payer is the prepaid revenue for payee..!

For payer, advance payment is an asset. i.e probable inflow of financial benefits (valued goods and/or services) in future. By the time, asset becomes an expense and decreases by the value of benefits received.

For receiver / payee, prepaid revenue is a liability. i.e probable outflow of financial benefits (valued goods and/or services) in future. By the time, liability becomes income and decreases by the value of benefits delivered.