Making insurance payments in advance is an example of:

A) A prepaid expense transaction.

B) A deferred revenue transaction.

C) An accrued expense transaction.

D) An accrued revenue transaction.

Answer: A

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.

D) Cash payment occurs after the expense is incurred and liability is recorded.

Answer: A

Deferred revenues refer to:

A) Customers paying cash in advance of the good or service to be provided.

B) Revenue being recorded prior to cash collection from the customer.

C) Revenue being recorded at the same time the cash is collected from the customer.

D) Cash being collected from the customer after the revenue is recorded.

Answer: A