Assets are items of value which are owned by the business, e.g. cash, accounts receivable, and equipment . Liabilities are debts owed by the firm, e.g. accounts payable and loans payable . Stockholders' equity is the owners' residual interest in the business and is equal to assets minus liabilities. It consists of the stockholders' investment in the business plus profits made by the business, which have not been withdrawn from the business. 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.