It’s important to note that although dividends reduce retained earnings, they are not expenses. Therefore, dividends are excluded when determining net income (revenue – expenses), just like stockholder investments (common and preferred). The owner’s equity formula highlights the fact that the value of equity depends on the value of assets. If the market value of the…

Examples of liabilities include bank loans, IOUs, promissory notes, salaries of employees, and taxes. Liabilities are on the right side of the balance sheet, and these accounts have a normal credit balance. It means that crediting liability accounts increases their balances while debiting them decreases their balances. In the world of accounting, a liability refers…