Multiple Choice
Under which type of accounting would the recording of a \$25,000 life insurance policy owned by P most appropriately be classified?
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1. Introduction to Accounting
Types of Accounting
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The underwriting process involves all of the following, except for:
A
Evaluating the financial risk of potential clients
B
Determining appropriate premiums for coverage
C
Recording daily sales transactions in the general ledger
D
Setting the terms and conditions of insurance policies
Verified step by step guidance1
Understand the concept of underwriting: Underwriting is the process used by insurance companies to evaluate the risk of insuring a potential client, determine appropriate premiums, and set the terms and conditions of the insurance policy.
Identify the tasks typically involved in underwriting: These include evaluating financial risks, determining premiums, and setting policy terms and conditions. These tasks are directly related to assessing and managing insurance risk.
Analyze the given options: The first three options (evaluating financial risk, determining premiums, and setting terms and conditions) are core activities of the underwriting process.
Recognize the unrelated task: Recording daily sales transactions in the general ledger is an accounting function, not part of the underwriting process. This task pertains to bookkeeping and financial reporting, not risk assessment or policy management.
Conclude that the correct answer is the task unrelated to underwriting: Recording daily sales transactions in the general ledger is not part of the underwriting process.
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