What account 4320 is for
You have ordered a new piece of equipment. The factory says: "Transfer part of the money first, then we start work." The money has gone, but the equipment is not here yet. That money is no longer an expense, and it is not yet part of the equipment's cost: it is money paid for something you are owed by the factory, so it is your asset. That prepaid amount sits in 4320.
Account type
In the chart of accounts, 4320 has type A (asset) and belongs to group 4300. An asset account normally has a debit balance.
The group and its sub-accounts
Under paragraph 186, group 4300 "Advances paid to suppliers and contractors" has three accounts:
| Account | What it records |
|---|---|
| 4310 "Advances paid to suppliers and contractors for inventories" | Money prepaid for inventories |
| 4320 "Advances paid to suppliers and contractors for long-term assets" | Money prepaid for long-term assets |
| 4330 "Other advances paid" | All other advances paid |
What goes to the debit side
The debit shows the advance itself; money paid in part for finished goods, work done or services also lands here, while the credit side shows the cash account (para. 187). The matching rows of the table in paragraph 188:
- an advance transferred from a bank account: Dr 4310-4330, Cr 5110-5530 (row 2);
- an advance transferred out of a loan or borrowing received: Dr 4310-4330, Cr 6810-6820, 7810-7820 (row 3);
- the long-term part of an advance moved to the current part: Dr 4310-4330, Cr 0940 (row 7).
What goes to the credit side
According to the table in paragraph 188, there are three cases on the credit side:
- the contract is cancelled and the advance is returned: Dr 5010-5530, Cr 4310-4330 (row 4);
- the advance is offset when paying the supplier's debt: Dr 6010, 7010, Cr 4310-4330 (row 5);
- an advance whose limitation period has expired is written off: Dr 9430, Cr 4310-4330 (row 6).
Analytical accounting
Under paragraph 187, analytical accounting for group 4300 is kept separately for each debtor. In other words, the question "how much advance have we given to whom" must be answerable supplier by supplier.
An advance is given on the basis of a contract, and the payment order states the amount of the partial payment or the percentage of the prepayment (para. 187).
Where people go wrong
- Do not mix it up with 4310. If the money went for raw materials or goods, use 4310; if it was for a long-term asset such as equipment, use 4320. The contract says what was paid for, so choose accordingly (practical tip).
- Do not confuse an advance with a debt. An advance is your claim on the supplier, not a debt. The debt (6010) appears when the equipment arrives, and only then is the advance offset against it (practical tip).
- Keep an eye on stale advances. If the equipment does not arrive for years, the advance just hangs in 4320. It is a good idea to get a reconciliation statement from suppliers every quarter (practical tip). When an advance whose limitation period has expired is written off, it goes to 9430 (para. 188, row 6).
Main journal entries 6
Debit and credit are as in the model table of Appendix 2 to NAS No. 21. The transaction text briefly restates the table row.
| Transaction | Debit | Credit | Source |
|---|---|---|---|
| Advances transferred from bank accounts | 4310–4330 | 5110–5530 | NAS No. 21, para. 188, row 2 (in the table: 4310-4330) |
| Advances transferred out of loans and borrowings received | 4310–4330 | 6810–6820, 7810–7820 | NAS No. 21, para. 188, row 3 (in the table: 4310-4330) |
| Advances paid earlier returned because the contract was cancelled | 5010–5530 | 4310–4330 | NAS No. 21, para. 188, row 4 (in the table: 4310-4330) |
| Advances paid earlier offset when settling debts to suppliers or contractors | 6010, 7010 | 4310–4330 | NAS No. 21, para. 188, row 5 (in the table: 4310-4330) |
| Advances paid to suppliers whose limitation period has expired written off | 9430 | 4310–4330 | NAS No. 21, para. 188, row 6 (in the table: 4310-4330) |
| The relevant amount of an advance paid moved from its long-term part to its current part | 4310–4330 | 0940 | NAS No. 21, para. 188, row 7 (in the table: 4310-4330) |
Example
Zarafshon Tegirmon LLC (a fictitious flour mill) ordered a dough-mixing line for 150,000,000 soums. The contract provides for a 20% prepayment. The line is accepted as equipment for installation (0710), since it needs assembly. The amounts are taken for illustration only:
| No. | Transaction | Dr | Cr | Amount, soums |
|---|---|---|---|---|
| 1 | Prepayment transferred from the bank account | 4320 | 5110 | 30,000,000 |
| 2 | The line arrived, debt to the supplier recorded | 0710 | 6010 | 150,000,000 |
| 3 | The advance offset against the debt to the supplier | 6010 | 4320 | 30,000,000 |
Source of the entries: 1 is para. 188, row 2; 2 is para. 66, row 1 (in the table: 0710-0720 and 6010-6020, 6110-6120); 3 is para. 188, row 5.
Calculation:
| Item | Amount, soums |
|---|---|
| Advance: 150,000,000 × 20% | 30,000,000 |
| Debit turnover of 4320 (1) | 30,000,000 |
| Credit turnover of 4320 (3) | 30,000,000 |
| Balance of 4320 | 0 |
| Credit turnover of 6010 (2) | 150,000,000 |
| Debit turnover of 6010 (3) | 30,000,000 |
| Debt remaining on 6010 | 150,000,000 − 30,000,000 = 120,000,000 |
The advance is closed and 4320 has no balance left. The supplier is still owed 120,000,000 soums, and paying it is recorded separately (example prepared by the author).