Under the cost recovery method, revenue is recognized only as costs are recovered. In the context of insurance or risk-financing activities (such as self-insurance), GASB and FASAB require that premium revenues be recognized over the term of the policy, in proportion to the recognition of related costs (e.g., claims incurred).
This aligns revenue with expenses and ensures no profit is recognized before related obligations are met.
Relevant References:
FASAB SFFAS No. 7 – Revenue and Other Financing Sources
GASB Statement No. 10 – Accounting for Risk Financing and Related Insurance Issues
GFOA Risk Management and Insurance Practices
Answer: B. throughout the duration of the policy when claim costs are incurred
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