Advance payment, also known as a prepayment, refers to an amount of money paid to a supplier or contractor before the goods or services have been delivered or completed. In accounting terms, such payments are typically recorded as a liability until the related goods or services are received, at which point they are recognized as an expense or asset.

When a company makes an advance payment, it would initially record this transaction by debiting a liability account like "Prepaid Expenses" or "Advance Payments" and crediting a cash account. As the goods or services are received over time, the liability is reduced, and the appropriate expense or asset account is debited.

For instance, if a company pays a deposit for a construction project, the payment would be recorded as a credit to "Prepaid Construction Costs" and a debit to "Cash." As the construction progresses and costs are incurred, the prepaid amount is gradually reduced, with a debit to "Construction in Progress" (an asset account) and a credit to "Prepaid Construction Costs."

This process ensures that a company's financial statements accurately reflect its financial position and the progress of its projects. It aligns with the matching principle of accounting, which requires expenses to be recognized in the same period as the related revenues.