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

2. Transaction Analysis

Journal Entries: Debits and Credits

Financial Accounting

2. Transaction Analysis

Journal Entries: Debits and Credits

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Multiple Choice

When ABC Insurance Company accepts a life insurance application that contains unanswered questions, which journal entry is most appropriate to record the initial premium payment received from the applicant?

Debit Unearned Premium Revenue; Credit Cash

Debit Cash; Credit Unearned Premium Revenue

Debit Premium Revenue; Credit Cash

Debit Accounts Receivable; Credit Premium Revenue

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Verified step by step guidance

Understand the nature of the transaction: The insurance company is receiving an initial premium payment from the applicant, but the premium is not yet earned because the application contains unanswered questions. This means the payment is considered unearned revenue.

Recall the accounting principle for unearned revenue: Unearned revenue is a liability because it represents an obligation to provide services in the future. When cash is received for unearned revenue, the company must record a liability until the revenue is earned.

Determine the accounts involved: The company receives cash, so the 'Cash' account is debited (increased). At the same time, the company incurs a liability for the unearned premium, so the 'Unearned Premium Revenue' account is credited (increased).

Write the journal entry: The journal entry should reflect the increase in cash and the increase in unearned premium revenue. Using the double-entry accounting system, the entry would be: Debit Cash; Credit Unearned Premium Revenue.

Review the incorrect options: Analyze why the other options are incorrect. For example, 'Debit Unearned Premium Revenue; Credit Cash' reverses the correct entry, 'Debit Premium Revenue; Credit Cash' prematurely recognizes revenue, and 'Debit Accounts Receivable; Credit Premium Revenue' is not applicable because cash was received, not accounts receivable.