- prepayment received for goods or services to be rendered. Some contracts require an advance before completion (e.g., construction project). When the business receives an advance payment, it records it as a liability. For example, a utility receiving a deposit from a customer will record it as a liability. Assume a lawyer receives a retainer of $50,000 on 1/1/2005 for future services to be rendered for a four-year period. Thus, each year $12,500 will be recognized as revenue. The journal entries for 2005 follow:
1/1/2005 Cash 50,000 Deferred revenue 50,000 12/31/2005 Deferred revenue 12,500 Revenue 12,500
See also deferred credit.
- money given to an employee before it is earned (e.g., advance against salary). The advance appears on the company’s books as a receivable from employee.
- principal amount available when a borrower draws from a line of credit, takes a cash advance against a bank credit card, or disburses a loan at specific periodic stages. Advances may be secured or unsecured. See also overdraft.
- to draw against a preapproved line of credit.
- in international banking, disbursement of funds to finance payment of collections or refinance a maturing loan, as in a bridge loan.
- discount windowloan from a Federal Reserve Bank to a commercial bank maintaining a reserve account at one of the 12 district Fed banks. These loans are backed by U.S. Treasury securities or acceptable collateral.
Most Federal Reserve credit is by advances, as this form of credit is easier to execute than rediscounting (selling) loans, and also because banks are reluctant to let their customers know they occasionally have to borrow. Contrast with rediscount.
in general, to proceed, move ahead; amount paid before it is earned or incurred, such as a cash advance for travel expenses.
Employee benefits: cash given to an employee before it is needed or earned. A travel advance is supplied so that an employee has cash to use on an upcoming business trip. Asalary advance is provided to help the employee cover emergency expenses.
Securities: increase in the price of stocks, bonds, commodities, or other assets. Often heard when referring to the movement of broad indexes, e.g., “The Dow Jones Industrials advanced 15 points today.”
Trade: advance payment for goods or services that will be delivered in the near future. For example, home contractors require an advance from homeowners to pay for building materials.
same as draw.