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

When a policyowner cash surrenders a universal life insurance policy, how is the transaction typically classified in accounting?

As a deferred revenue item

As an expense on the income statement

As a reduction in liabilities and recognition of income for the surrender value received

As an increase in assets and recognition of a capital gain

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Verified step by step guidance

Understand the nature of the transaction: Cash surrender of a universal life insurance policy involves the policyowner receiving the surrender value, which is the cash value accumulated in the policy minus any applicable fees or charges.

Identify the accounting classification: The surrender value received by the policyowner is typically treated as a reduction in liabilities because the insurance company no longer has the obligation to provide coverage under the policy.

Recognize the income component: The surrender value received may also be recognized as income by the insurance company, as it represents the financial benefit realized from the termination of the policy.

Analyze why it is not classified as deferred revenue or a capital gain: Deferred revenue refers to income received in advance for services not yet performed, which does not apply here. A capital gain typically arises from the sale of an asset, which is not the case in this transaction.

Conclude the accounting treatment: The transaction is classified as a reduction in liabilities and recognition of income for the surrender value received, aligning with the correct answer provided in the problem.