How to Record Revenue for an Annual Property Insurance Policy

How would Apex Insurance Company record the revenue related to this policy for the month of September, 2014?

Imagine it's April 1, 2014, and Apex Insurance Company received payment of $6,000 for an annual property insurance policy from one of their corporate customers. How can Apex record the revenue for September 2014?

Answer:

To record the revenue related to the property insurance policy for the month of September 2014, Apex Insurance Company would follow these steps:

1. Determine the portion of the policy that relates to September. Since it's an annual policy, the revenue needs to be recognized over the entire policy period. In this case, recognize one-seventh of the total revenue for September as it is the seventh month of the policy period.

2. Calculate the revenue to be recognized for September by dividing the total payment of $6,000 by 12 months to get the monthly revenue. Then, multiply this monthly revenue by the number of months that have passed in the policy period (7 months).

Monthly Revenue = $6,000 / 12 = $500
Revenue for September = $500 x 7 = $3,500

3. Record the revenue by debiting the Accounts Receivable or Cash account for $3,500 and crediting the Unearned Revenue or Deferred Revenue account for $3,500.

Journal Entry:
Debit: Accounts Receivable/Cash $3,500
Credit: Unearned Revenue/Deferred Revenue $3,500

By following these steps and recording the revenue accurately, Apex Insurance Company can reflect the revenue related to the property insurance policy for September 2014 correctly.

Details of Recording Revenue for an Annual Property Insurance Policy

Apex Insurance Company receives payment for an annual property insurance policy and needs to record the revenue properly. By recognizing one-seventh of the total revenue for the seventh month, calculating the revenue for September, and making the journal entry, Apex ensures accurate financial reporting.

It's essential for insurance companies like Apex to follow accounting principles to record revenue accurately and reflect the true financial position. By understanding how to record revenue for specific periods, Apex can make informed decisions and comply with accounting standards.