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Question

Life insurance premium received by an insurance company' should be classified as _______________.

A
Accrued asset
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B
Accrued liability
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C
Prepaid expense
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D
Unearned revenue
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Solution

The correct option is D Unearned revenue
The life insurance premium should be classified as unearned revenue because against this amount still the company has to render service. Actually the insurance company will treat each year pro-rata amount of premium received as income.
For example insurance company receives Rs.10000 as premium for 10 years. First it shoud be treated as unearned revenue and then each year Rs.1000 should be shifted from this account to income account.

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