Multiple Choice
Which type of accounting is primarily concerned with recording and reporting transactions related to insurance, where a customer shares risk with a company?
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1. Introduction to Accounting
Types of Accounting
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An asset promised as security until a loan is paid is called:
A
Equity
B
Depreciation
C
Revenue
D
Collateral
Verified step by step guidance1
Step 1: Understand the concept of collateral. Collateral refers to an asset that a borrower offers to a lender as security for a loan. If the borrower fails to repay the loan, the lender has the right to seize the collateral to recover the loan amount.
Step 2: Review the options provided in the question. The options include Equity, Depreciation, Revenue, and Collateral. Each term has a distinct meaning in financial accounting.
Step 3: Clarify why the other options are incorrect: Equity refers to ownership interest in a company, Depreciation is the reduction in the value of an asset over time, and Revenue is the income generated from business operations. None of these terms relate to the concept of securing a loan.
Step 4: Identify that Collateral is the correct term because it directly matches the definition of an asset promised as security until a loan is paid.
Step 5: Conclude that the correct answer is Collateral, as it aligns with the concept described in the question.
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