ABSTRACT
Fundamenta l accounting concepts are concerned wi th consistency
and wi th prudence. However , of greater significance for our current
purposes is the pr inciple of matching (assigning items to relevant
periods). U n d e r this principle the accountant expects what is recorded
in the accounts to reflect only the cash payments in or out which
relate to the per iod in question. Thus premiums received to cover
risks i n a future accounting per iod are not treated as income unt i l
that later period. If such premiums have been received, then a provision
must be set up i n respect of amounts relating to future accounting
periods. F o r example, i f a p remium which relates to a per iod from the
middle of the accounting year to the middle of the next year is
received, half of it (of the risk part) should be taken as income of
the accounting year and the other half should be reserved as a
provis ion (premium reserve) even though the total amount of the
p remium is included i n the cash flow of the year when it is paid.
