Cash or Accrual Method

Cash or Accrual Method The cash method and accrual method are both acceptable accounting methods for insurance companies. However, the accrual method is generally considered to be the better method for insurance companies because it provides a more accurate picture of their financial performance Accrual accounting means revenue and expenses are recognized and recorded when they occur, while cash basis accounting means these line items aren't documented until cash exchanges hands. Cash basis accounting is easier, but accrual accounting portrays a more accurate portrait of a company's health by including accounts payable and accounts receivable. The cash method may be used by small insurance companies with simple financial transactions. However, most insurance companies will need to use the accrual method to get a more accurate picture of their financial performance. The reasons why the accrual method is preferred for insurance companies: revenue recognition, expense recognition, liability recognition. For example to collect benefits for a partial disability under the residual provision, the insured must show proof of loss of earnings. The insured can choose one of two accounting methods to determine monthly earnings either cash or accrual. The same method must be used at all times for any one disability. Ultimately, the best accounting method for an insurance company will depend on its specific circumstances. However, the accrual method is generally considered to be the better method for most insurance companies. #benewinsurance #insurtech #inclusiveinsurance #insurance #reinsurance #takaful