A down payment is cash paid upfront toward a larger purchase, before the buyer has fully received the goods, services, or asset. In a journal entry, it is recorded as an asset, not an expense because it represents value the buyer is still entitled to receive (or has just acquired through financing).
The accounts used depend on the situation. A deposit paid before delivery is debited to a prepaid or deposit account. A down payment made when the asset is delivered immediately is debited directly to the asset, with the financed balance credited to a liability.
A company pays $5,000 upfront to a supplier for inventory scheduled to arrive in 30 days. The entry at the time of payment:
Debit Prepaid Inventory for $5,000
Credit Cash for $5,000
When the inventory is received:
Debit Inventory for $5,000
Credit Prepaid Inventory for $5,000
A company buys equipment for $40,000, paying $10,000 down and financing the remaining $30,000 through a bank loan. The entry on the purchase date:
Debit Equipment for $40,000
Credit Cash for $10,000
Credit Notes Payable for $30,000
The equipment is recorded at its full cost, cash decreases by the amount paid, and the unpaid balance becomes a liability that will be reduced as loan payments are made.
Both. The cash leaving the business is a credit to Cash. The offsetting debit goes to the prepaid account (if delivery is pending) or the purchased asset (if delivery is immediate). On financed purchases, an additional credit posts to a liability account for the unpaid balance.
A down payment is not an expense until the related goods or services are received, or until the deposit becomes unrecoverable.