Advance Payment

AAA

DEFINITION of 'Advance Payment'

Any type of payment that is made ahead of its normal schedule, such as paying for a good or service before you actually receive the good or service. Advance payments are sometimes required by sellers as protection against non-payment.

INVESTOPEDIA EXPLAINS 'Advance Payment'

Some everyday examples of advance payments are prepaid cellphones, or simply prepaying your rent or utilities as many people do now. In the corporate world, companies often have to make advance payments to suppliers when their orders are large. Suppliers may not have enough capital to buy the materials needed to produce a large order, so they use part of the advance payment to pay for the product they will be creating. If a corporation is required to make an advance payment, it is recorded as a prepaid expense on the balance sheet under the accrual accounting method.

RELATED TERMS
  1. Prepaid Expense

    A type of asset that arises on a balance sheet as a result of ...
  2. Accrual Accounting

    An accounting method that measures the performance and position ...
  3. Accruals

    Accounts on a balance sheet that represent liabilities and non-cash-based ...
  4. Accelerated Payments

    A term associated with making additional unscheduled payments ...
  5. Chart Of Accounts

    A listing of each account a company owns, along with the account ...
  6. Operating Cost

    Expenses associated with administering a business on a day to ...
RELATED FAQS
  1. Why would a company make drastic cuts to its dividend payments?

    A dividend cut occurs when a dividend paying company either completely stops paying out dividends (a worst-case scenario) ... Read Full Answer >>
  2. What does CHIPS UID mean?

    CHIPS UID stands for Clearing House Interbank Payments System Universal Identifier. This is just a fancy name for an electronic ... Read Full Answer >>
  3. How is minimum transfer price calculated?

    A company that transfers goods between multiple divisions needs to establish a transfer price so that each division can track ... Read Full Answer >>
  4. What Book Value Of Equity Per Share (BVPS) ratio indicates a buy signal?

    Book value of equity per share (BVPS) is a ratio used in fundamental analysis to compare the amount of a company's shareholders' ... Read Full Answer >>
  5. What is the effective interest method of amortization?

    The effective interest method is an accounting practice used for discounting a bond. This method is used for bonds sold at ... Read Full Answer >>
  6. What does an unfavorable variance indicate to management?

    In managerial accounting, an unfavorable variance is discovered when a company's management performs a comparison between ... Read Full Answer >>
Related Articles
  1. Economics

    Exploring The Current Account In The Balance Of Payments

    Learn how a country's current account balance reflects the country's economic health.
  2. Bonds & Fixed Income

    Understanding Capital And Financial Accounts In The Balance Of Payments

    The current, capital and financial accounts compose a nation's balance of payments.
  3. Investing Basics

    Calculating Unlevered Free Cash Flow

    Unlevered free cash flow (UFCF) is the free cash flow of a business before interest payments.
  4. Taxes

    Understanding Write-Offs

    Write-off has different meanings depending on the context in which it is used, but generally refers to a reduction in value due to expense or loss.
  5. Economics

    What are Capital Goods?

    Capital goods are assets with a useful life of more than one year that are used for the production of income.
  6. Economics

    Understanding Capital Assets

    A capital asset is one that a company plans on owning for more than one year, and uses in the production of revenue.
  7. Fundamental Analysis

    What is Year-to-Date?

    Year-to-date (YTD) is a term that describes financial results from the beginning of the current year up to the day the financial number is reported.
  8. Investing Basics

    Explaining Net Tangible Assets

    Net tangible assets is a company’s total assets subtracting both intangible assets (such as goodwill and intellectual property) and total liabilities.
  9. Economics

    What is Managerial Accounting?

    Managerial accounting is internally-based accounting that helps managers measure the results of their decisions.
  10. Investing Basics

    Understanding Long-Term Debt

    Long-term debt is any debt or liability that is due in more than one year.

You May Also Like

Hot Definitions
  1. Bund

    A bond issued by Germany's federal government, or the German word for "bond." Bunds are the German equivalent of U.S. Treasury ...
  2. European Central Bank - ECB

    The central bank responsible for the monetary system of the European Union (EU) and the euro currency. The bank was formed ...
  3. Quantitative Easing

    An unconventional monetary policy in which a central bank purchases private sector financial assets in order to lower interest ...
  4. Current Account Deficit

    A measurement of a country’s trade in which the value of goods and services it imports exceeds the value of goods and services ...
  5. International Monetary Fund - IMF

    An international organization created for the purpose of: 1. Promoting global monetary and exchange stability. 2. Facilitating ...
  6. Risk-Return Tradeoff

    The principle that potential return rises with an increase in risk. Low levels of uncertainty (low-risk) are associated with ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!