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

If a corporation pays the premium for an insurance policy that covers its employees, how should this transaction be classified in accounting?

As a liability on the balance sheet

As an operating expense on the income statement

As a revenue item on the income statement

As a capital expenditure on the balance sheet

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Verified step by step guidance

Understand the nature of the transaction: The corporation is paying for an insurance policy that benefits its employees. This payment is considered a cost incurred during normal business operations.

Determine the classification: Since the payment is related to employee benefits and is part of the company's regular operating activities, it should be classified as an operating expense.

Identify the financial statement: Operating expenses are reported on the income statement, which reflects the company's revenues and expenses during a specific period.

Eliminate incorrect options: A liability on the balance sheet would represent an obligation, which this transaction is not. Revenue items on the income statement represent income earned, not expenses. Capital expenditures on the balance sheet are for long-term assets, which this transaction does not involve.

Conclude the correct classification: The payment for the insurance policy should be recorded as an operating expense on the income statement, as it aligns with the definition of costs incurred during normal business operations.