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Foundations of Casualty Actuarial Science

Contributed Capital

Income = Change in Assets - Change in liabilities -
Change in Contributed Capital + Dividends to Owners.

This demonstrates the relationship between the balance
sheet and the income statement of the firm. In particular,
any change in liability account, such as loss reserves,
has a direct impact on insurer's income.

c) Accrual Accounting - The balance sheet and the
income statement of an insurance company are prepared
on an accrual basis. A cash basis of accounting simply
recognizes revenues when they are received and reports
expenses when they are made.

The accrual basis enables matching of revenues with
their associated expenses. Under the accrual basis,
revenues are recognized when earned. Costs are
reported as expenses in the same period as the revenues
giving rise to those costs are recognized. The main
sources of an insurer's revenue are earned premium,

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