Annual Premium Equivalent (APE)
For insurance companies, measuring the revenue for certain products can cause accounting issues. Policies that get paid off in a single one-off premium pose a particular problem. Those policies might last for a long time, meaning that the liability and cost stay on a company's books for some time. However, the revenue gets booked all at once.
So if you were to look at a company's financial statement, it would look like one good month or quarter (the month or quarter where the premium check was cashed) followed by a bunch of bad ones (those months and quarters where there is no check, but the policy remains on the books).Meanwhile, there are other policies that generate recurring payments. The customer pays for the policy over time, sending regular checks to cover the insurance. These more clearly show the benefits and liabilities tied to the policy, since the revenues appear in the financials on a recurring basis.
Annual Premium Equivalent is an accounting maneuver to solve this problem. The APE treats the single-premium plans as if they operated like recurring-payment policies. For accounting purposes, the revenue is figured over time, more accurately reflecting how the sales affect the company.
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what is an income statement I made money yeah that's an income statement and it's [Man jumping up as money rains down]
actually not all that far off from what accountants lawyers bankers and other
forms of humans who count beans call an income statement well cleverly named an
income statement is a statement of income it just states how you made your [Two guys stood at a food stall]
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to drink liquefied potatoes then you had to rent space for your stand and buy
insurance and advertise and that abnoxious mascot in the potato costume
you had five million in revenue and three million in expenses and this [revenue of french fries smoothie stand]
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after-tax profit this whole thing right here is your income statement and yeah [income statement for french fries smoothie business]
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