Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

1. Introduction to Accounting

Types of Accounting

Financial Accounting

1. Introduction to Accounting

Types of Accounting

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Multiple Choice

An insurance premium is paid by a business. Under which type of accounting is this payment first recorded as a prepaid expense?

Tax accounting

Accrual accounting

Cash accounting

Managerial accounting

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Understand the concept of prepaid expenses: Prepaid expenses are payments made in advance for goods or services that will be received in the future. These are recorded as assets initially because they represent future economic benefits.

Identify the accounting method that recognizes prepaid expenses: Accrual accounting records transactions when they occur, regardless of when cash is exchanged. Under this method, prepaid expenses are recorded as assets until the benefit is consumed or the service is used.

Contrast accrual accounting with cash accounting: Cash accounting records transactions only when cash is exchanged. In this method, there is no concept of prepaid expenses; expenses are recognized when payment is made.

Exclude managerial and tax accounting: Managerial accounting focuses on internal decision-making and does not follow strict rules for recording prepaid expenses. Tax accounting is governed by tax laws and may not align with accrual accounting principles.

Conclude that under accrual accounting, the insurance premium payment is first recorded as a prepaid expense because it represents a future benefit to the business.