Dear Student,

The term prepaid is used in context of expenses paid before their due date and the term advance is mostly used for incomes received before their due date.

In the question, the adjustment:
"Commission includes Rs 300 being commission received in advance."
means that a portion of commission equal to Rs. 300 has been received in advance and is meant for a future time period.
Therefore, this portion of commission should be deducted from total commission received to account for this years commission income.
And this advance commission should be recorded on the liabilities side ??because it is the income which is not accrued yet but received. So till the time it's not being accrued it will be treated as liability.

If you have any other query, please post it on the forum. We'll be happy to help you.


You are saying that till the time it become accrued it will not mention in asset side ok agree
What is the thing or emotion which we are liable to pay as liability in commission received in advance case
because we received commission after some work is done like (manager commission who get commission on net profit only and it is commission received from manager point of view)
Plz tell me this also that commission is something which we received from someone who get profit by our workforce (of this definition is correct then please tell me why I will pay someone commission in advance before I get some profit )

At last I want to say that is it the work which is liable in advance commission
If yes then it will contradicts my above lines.

Dear Student
When the income which had already been received will be shown on income side of Profit & Loss A/c at the time when the same will be accrued and not as an asset.
Receiving any amount in advance does not mean that the same has been paid for the work done, sometimes there are chances that the person is in need or on the trust basis and due to some other reasons too, we pay someone the advance for the services or the work which is to be done later on for which we need not to pay in future.

For example-
There is a worker at a factory, he needs some money for any casualty at home, and he is paid in advance for his salary. Here also he didnt rendered his services but is being paid in advance for which services are to rendered in future, 
For worker that receipt will be liability til the same is not being accrued
For the Boss same is an asset till the salary of worker will not become due.

Same is the case with Manager's Commission or any other expense.


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