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 K applies for a life insurance policy on herself and submits the initial premium, which journal entry should be recorded in K's accounting records?

Debit Cash; Credit Insurance Revenue

Debit Prepaid Insurance; Credit Cash

Debit Insurance Expense; Credit Accounts Payable

Debit Insurance Payable; Credit Prepaid Insurance

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Verified step by step guidance

Understand the nature of the transaction: K is applying for a life insurance policy and submitting the initial premium. This payment represents a prepaid expense because the insurance coverage will be provided over a future period.

Identify the correct accounts involved: Prepaid Insurance is an asset account that represents the amount paid in advance for insurance coverage. Cash is reduced because the payment is made upfront.

Determine the journal entry: The initial premium payment decreases Cash (credit) and increases Prepaid Insurance (debit), reflecting the advance payment for future insurance coverage.

Analyze why other options are incorrect: For example, 'Debit Insurance Expense; Credit Accounts Payable' is incorrect because the payment is not an expense yet—it is prepaid. Similarly, 'Debit Cash; Credit Insurance Revenue' is incorrect because this transaction does not generate revenue.

Record the journal entry: Debit Prepaid Insurance to increase the asset account and Credit Cash to decrease the cash account, ensuring the accounting equation remains balanced.