Profitability is measured as the difference between the revenues generated and the expenses incurred to produce those revenues. Revenues are increases in owners' equity resulting from transactions with customers. They usually represent inflows of assets resulting from the sale of products or the rendering of services to customers. Expenses are decreases in owners' equity resulting from transactions necessary for doing business with customers or supporting business operations. For a profitable business, revenues exceed expenses resulting in net income.
Dividends are distributions of assets to the owners of the corporation.
They are not expenses but represent decreases in owners' equity resulting from transactions with owners. Operating activities generally include the cash effects of transactions and other events related to the operations of the business. Investing activities generally include the cash effects of transactions involving the acquisition or disposal of long-term assets such as land, buildings, and equipment . State the basic accounting equation and describe its relationship to the balance sheet. The basic accounting equation states that assets equal equities.