Advance Payment from Customer

Dear Akaunting Team,

I would like to clarify an accounting issue we are facing and request your guidance.

When we receive an advance payment from a customer, we record it correctly as an advance. However, when we later make a payment to a supplier and then receive a refund or adjustment from the same supplier, the system behaviour is not aligning with standard accounting treatment.

The entries we are passing are as follows:

Payment to Supplier (Advance):
Advance to Supplier (ABC) – Debit
Bank – Credit
This correctly appears in the balance sheet as an advance to the supplier.

Amount Received Back from Supplier (ABC):
Bank – Debit
Advance to Supplier (ABC) – Credit

While the first entry is reflected correctly in the balance sheet, the second entry is showing in the income statement as a “Deposit”, which is not correct. This transaction is a reversal/adjustment of an advance and should only impact the balance sheet, not be treated as income.

Kindly advise:

The correct setup (account type/category) for advance payments to suppliers, and

How to record the supplier refund/adjustment so it does not appear in the income statement.

Your guidance on the proper configuration or workflow in Akaunting would be much appreciated.

Thank you for your support.