When policy periods expire, the premiums written are earned and are recognized as __________.
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A. B. C. D.C
When policy periods expire, the premiums written are earned, and are recognized as revenues.
To understand why premiums written are recognized as revenues when policy periods expire, it's helpful to first define what premiums written are. Premiums written refer to the total amount of premiums charged by an insurance company for policies issued during a specific period of time, regardless of whether or not the premiums have been collected.
Insurance companies use an accrual accounting method to record their financial transactions, which means that revenue is recognized when it is earned, regardless of when payment is received. In the case of insurance premiums, revenue is earned over the policy period, as the insurance company incurs the obligation to pay claims over that time.
When the policy period ends, the premiums written are considered earned because the insurance company has fulfilled its obligation to provide coverage for that period, and has incurred the associated costs and risks. The premiums written are recognized as revenue on the company's income statement, as they represent the amount of money the company has earned from providing insurance coverage.
Therefore, the correct answer is C. Revenues.