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

7. Receivables and Investments

Types of Receivables

Financial Accounting

7. Receivables and Investments

Types of Receivables

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Multiple Choice

Which type of receivable is most likely to arise when a disability policyowner is injured and becomes totally disabled, and the insurance company owes them future benefit payments?

Interest Receivable

Accounts Receivable

Notes Receivable

Accrued Receivable

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Verified step by step guidance

Understand the concept of 'Accrued Receivable': This type of receivable arises when revenue or benefits are earned but not yet received in cash. In this case, the insurance company owes future benefit payments to the policyowner who is totally disabled.

Analyze the scenario: The policyowner is injured and becomes totally disabled, which triggers the insurance company’s obligation to pay future benefits under the disability policy.

Identify why 'Accrued Receivable' is the correct classification: The future benefit payments owed by the insurance company represent an obligation that has been incurred but not yet paid. This aligns with the definition of accrued receivables.

Compare with other options: 'Interest Receivable' refers to interest earned but not yet received, which is unrelated to this scenario. 'Accounts Receivable' typically involves amounts due from customers for goods or services provided, and 'Notes Receivable' involves formal written promises to pay a specific amount. Neither fits the context of future benefit payments owed by an insurance company.

Conclude that 'Accrued Receivable' is the most appropriate type of receivable for this situation, as it reflects the insurance company’s obligation to pay benefits that have been earned but not yet received by the policyowner.