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 an insurance company makes a payment to a business for an insured loss, how should the business record this transaction in its journal entries?

Debit Cash; Credit Insurance Revenue

Debit Insurance Payable; Credit Cash

Debit Accounts Receivable; Credit Insurance Expense

Debit Insurance Expense; Credit Cash

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Verified step by step guidance

Understand the nature of the transaction: The insurance company is compensating the business for an insured loss. This payment represents income or revenue for the business, as it offsets the loss incurred.

Determine the accounts involved: The business is receiving cash from the insurance company, so the 'Cash' account will be debited to reflect the increase in cash. The corresponding credit will be made to an account that represents the revenue generated from the insurance payment, typically 'Insurance Revenue'.

Analyze the journal entry structure: In accounting, debits increase asset accounts (like Cash), while credits increase revenue accounts (like Insurance Revenue). This aligns with the nature of the transaction.

Write the journal entry: Debit the 'Cash' account to record the increase in cash received. Credit the 'Insurance Revenue' account to record the income generated from the insurance payment.

Review the other options provided: The other options involve accounts like 'Insurance Payable', 'Accounts Receivable', and 'Insurance Expense', which are not relevant to this transaction. Ensure the correct accounts are used based on the nature of the payment.