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Foundations of Casualty Actuarial Science

98. Income may be either used to increase owners' equity
in the firm (i.e. increase retained earnings) or distributed
to owners as dividends. This can be written as
Income = Change in Retained Earnings + Dividends to
Owners

99. There are series of equations that defines the relationship
between the balance sheet and the income statement.
The relationship can be obtained by chaining together
the basic accounting equations.
Income = Change in Retained Earnings + Dividends to
Owners but,
Retained Earnings = Owners' Equity - Contributed
Capital; and,
Retained Earnings = Assets - Liabilities - Contributed
Capital; and,
Income = Change in Assets - Change in Liabilities
Change in Contributed Capital + Dividends to Owners

100. Accrual Accounting
The balance sheet and the income statement of an
insurance company are prepared on an accrual basis. A

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