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Difference between advances and loans..?

Sir what is the difference between advances and loans..?

asked Sep 9, 2016 in Terminology in Accounts by Sankari Dkshith B (99 points) 123 views
reshown Sep 10, 2016 by jbsclasses

1 Answer

0 votes

Difference between Advance and Loan.

Advance: Let us understand this with the help of an example.  Mr. A orders a machine from M/s XYZ Ltd.  M/s XYZ Ltd tells Mr. A since the machine ordered by Mr. A is a customized machine which they will have to manufacture for him, they need an advance of Rs.1,00,000 which will be adjusted against the final payment of the machine.  This is an advance paid by Mr. A and received by M/s XYZ Ltd.  From above example we can say that  ‘Amounts paid or received before meeting a commitment, such as supply of goods or services is called an Advance.  Short term loans given by banks,  normally for a period of less than one year are also called advances.

Loan: Loan is an amount borrowed by a party from a bank or any other financier for a specific period, normally for more than a year, which is to be returned after the specific time period with interest.

answered Sep 10, 2016 by jbsclasses (3,971 points)
Yeah I can understand the difference sir

Thank you

My pleasure.yes