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 an agent and an applicant for a life insurance policy fill out and sign the application, which journal entry should the insurance company record upon receiving the initial premium payment?

Debit Accounts Receivable; Credit Premium Revenue

Debit Unearned Premium Revenue; Credit Cash

Debit Premium Revenue; Credit Cash

Debit Cash; Credit Unearned Premium Revenue

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Verified step by step guidance

Step 1: Understand the nature of the transaction. When the insurance company receives the initial premium payment, it is receiving cash upfront for a service (insurance coverage) that will be provided in the future. This creates a liability for the company, as it owes the coverage to the policyholder.

Step 2: Identify the accounts involved. The two accounts affected are 'Cash' (an asset account) and 'Unearned Premium Revenue' (a liability account). Cash increases because the company receives payment, and Unearned Premium Revenue increases because the company has an obligation to provide coverage.

Step 3: Determine the type of journal entry. Since Cash is an asset account, receiving cash means it should be debited (increased). Unearned Premium Revenue is a liability account, and recording the obligation means it should be credited (increased).

Step 4: Write the journal entry. The journal entry will be: Debit Cash (to record the increase in cash) and Credit Unearned Premium Revenue (to record the liability for future coverage).

Step 5: Understand the accounting principle. This entry follows the accrual accounting principle, which requires revenue to be recognized only when earned. Since the insurance coverage has not yet been provided, the premium payment is recorded as unearned revenue rather than premium revenue.