Prepayments occur when: A. Cash flow precedes expense recognition. B. Sales are delayed pending credit approval. C. Customers are unable to pay the full amount due when goods are delivered. D. Manufactured goods await quality control inspections. E. Insurance expense is recognized.

The correct answer is letter "A": Cash flow precedes expense recognition.

Explanation:

In the corporate world, prepayments are the accounting operation by which the payment of liability is made before its due date. Prepayments could come in the form of paying bills, wages, operating or non-operating expenses in advance. Those payments could be made in a lump-sum or exceeding a given amount periodically.

Prepayments can also be defined as cash flows preceding the recognition of expenses.