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 the full insurance premium is submitted with the application, which journal entry should be recorded by the company?

Debit Accounts Receivable; Credit Insurance Revenue

Debit Cash; Credit Unearned Revenue

Debit Unearned Revenue; Credit Cash

Debit Insurance Expense; Credit Cash

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Verified step by step guidance

Understand the nature of the transaction: When the full insurance premium is submitted with the application, the company receives 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 service to the customer.

Identify the correct accounts: Since cash is received, the 'Cash' account will be debited to reflect the increase in the company's assets. The company also incurs a liability because the service has not yet been provided, so the 'Unearned Revenue' account will be credited to record this obligation.

Recall the accounting principle: Unearned revenue is a liability account because it represents money received for services not yet performed. This aligns with the accrual basis of accounting, where revenue is recognized only when earned.

Construct the journal entry: The journal entry should debit 'Cash' to increase assets and credit 'Unearned Revenue' to increase liabilities. This reflects the receipt of cash and the obligation to provide future services.

Review the options provided: The correct journal entry is 'Debit Cash; Credit Unearned Revenue,' as it accurately reflects the transaction's impact on the company's financial statements.