Prepayments occur when:
A)Cash payment (or an obligation to pay cash)occurs before the expense recognition.
B)Sales are delayed pending credit approval.
C)Customers are unable to pay the full amount due when goods are delivered.

Question

Quizplus · Accepted Answer

Prepayments occur when an entity pays cash (or becomes obligated to pay cash) before the expense recognition. This can be due to the purchase of goods or services that will be consumed or used in the future, and therefore the expense recognition is delayed until the actual use or consumption occurs. Examples of prepayments include rent paid in advance, insurance premiums, and prepaid advertising.

Prepayments Occur When