diff --git a/erpnext/accounts/doctype/sales_invoice/test_sales_invoice.py b/erpnext/accounts/doctype/sales_invoice/test_sales_invoice.py
index 378be113e7c1..e0a7ff002bbd 100644
--- a/erpnext/accounts/doctype/sales_invoice/test_sales_invoice.py
+++ b/erpnext/accounts/doctype/sales_invoice/test_sales_invoice.py
@@ -1801,6 +1801,10 @@ def test_outstanding_amount_after_advance_jv_cancellation(self):
 		)
 
 	def test_outstanding_amount_after_advance_payment_entry_cancellation(self):
+		"""Test impact of advance PE submission/cancellation on SI and SO."""
+		from erpnext.selling.doctype.sales_order.test_sales_order import make_sales_order
+
+		sales_order = make_sales_order(item_code="138-CMS Shoe", qty=1, price_list_rate=500)
 		pe = frappe.get_doc(
 			{
 				"doctype": "Payment Entry",
@@ -1820,10 +1824,25 @@ def test_outstanding_amount_after_advance_payment_entry_cancellation(self):
 				"paid_to": "_Test Cash - _TC",
 			}
 		)
+		pe.append(
+			"references",
+			{
+				"reference_doctype": "Sales Order",
+				"reference_name": sales_order.name,
+				"total_amount": sales_order.grand_total,
+				"outstanding_amount": sales_order.grand_total,
+				"allocated_amount": 300,
+			},
+		)
 		pe.insert()
 		pe.submit()
 
+		sales_order.reload()
+		self.assertEqual(sales_order.advance_paid, 300)
+
 		si = frappe.copy_doc(test_records[0])
+		si.items[0].sales_order = sales_order.name
+		si.items[0].so_detail = sales_order.get("items")[0].name
 		si.is_pos = 0
 		si.append(
 			"advances",
@@ -1831,6 +1850,7 @@ def test_outstanding_amount_after_advance_payment_entry_cancellation(self):
 				"doctype": "Sales Invoice Advance",
 				"reference_type": "Payment Entry",
 				"reference_name": pe.name,
+				"reference_row": pe.references[0].name,
 				"advance_amount": 300,
 				"allocated_amount": 300,
 				"remarks": pe.remarks,
@@ -1839,7 +1859,13 @@ def test_outstanding_amount_after_advance_payment_entry_cancellation(self):
 		si.insert()
 		si.submit()
 
-		si.load_from_db()
+		si.reload()
+		pe.reload()
+		sales_order.reload()
+
+		# Check if SO is unlinked/replaced by SI in PE & if SO advance paid is 0
+		self.assertEqual(pe.references[0].reference_name, si.name)
+		self.assertEqual(sales_order.advance_paid, 0.0)
 
 		# check outstanding after advance allocation
 		self.assertEqual(
@@ -1847,11 +1873,9 @@ def test_outstanding_amount_after_advance_payment_entry_cancellation(self):
 			flt(si.rounded_total - si.total_advance, si.precision("outstanding_amount")),
 		)
 
-		# added to avoid Document has been modified exception
-		pe = frappe.get_doc("Payment Entry", pe.name)
 		pe.cancel()
+		si.reload()
 
-		si.load_from_db()
 		# check outstanding after advance cancellation
 		self.assertEqual(
 			flt(si.outstanding_amount),
diff --git a/erpnext/accounts/utils.py b/erpnext/accounts/utils.py
index 8f0ef869ad32..971932e415ab 100644
--- a/erpnext/accounts/utils.py
+++ b/erpnext/accounts/utils.py
@@ -560,6 +560,10 @@ def update_reference_in_journal_entry(d, journal_entry, do_not_save=False):
 	"""
 	jv_detail = journal_entry.get("accounts", {"name": d["voucher_detail_no"]})[0]
 
+	# Update Advance Paid in SO/PO since they might be getting unlinked
+	if jv_detail.get("reference_type") in ("Sales Order", "Purchase Order"):
+		frappe.get_doc(jv_detail.reference_type, jv_detail.reference_name).set_total_advance_paid()
+
 	if flt(d["unadjusted_amount"]) - flt(d["allocated_amount"]) != 0:
 		# adjust the unreconciled balance
 		amount_in_account_currency = flt(d["unadjusted_amount"]) - flt(d["allocated_amount"])
@@ -625,6 +629,13 @@ def update_reference_in_payment_entry(
 
 	if d.voucher_detail_no:
 		existing_row = payment_entry.get("references", {"name": d["voucher_detail_no"]})[0]
+
+		# Update Advance Paid in SO/PO since they are getting unlinked
+		if existing_row.get("reference_doctype") in ("Sales Order", "Purchase Order"):
+			frappe.get_doc(
+				existing_row.reference_doctype, existing_row.reference_name
+			).set_total_advance_paid()
+
 		original_row = existing_row.as_dict().copy()
 		existing_row.update(reference_details)