Assets-Items owned by the business entity that will provide future benefits. Examples include cash, merchandise, accounts receivable, equipment, and land. Liabilities-Amounts owed to another entity. Examples include accounts payable, and notes payable. Also called net worth of the business or capital.
Revenues increase assets and owner's equity.
Expenses-Created as a result of efforts made to produce revenues. Expenses either decrease assets or increase liabilities. Expenses also decrease owner's equity. If revenues are larger than expenses, the business has a net income. If revenues are smaller than expenses, the business has a net loss.