In financial accounting, a down payment is an upfront payment of what to make a purchase?

• A. Cash
• B. Inventory
• C. Accounts Receivable
• D. Prepaid Expenses

Answer: (A)

Verified step by step guidance

1. Understand the concept of a down payment: A down payment is an upfront payment made in cash or equivalent to secure a purchase or transaction. It is typically used in situations like buying inventory, property, or other assets.
2. Analyze the options provided: Cash, Inventory, Accounts Receivable, and Prepaid Expenses. Determine which of these represents the form of payment made upfront.
3. Recognize that a down payment is typically made using cash or cash equivalents, as it represents an immediate transfer of funds to the seller.
4. Eliminate incorrect options: Inventory refers to goods held for sale, Accounts Receivable represents amounts owed to the company by customers, and Prepaid Expenses are payments made for future benefits. None of these are forms of upfront payment.
5. Conclude that the correct answer is 'Cash,' as it is the most appropriate form of payment for a down payment in financial accounting.