Where do revenues, expenses and dividends fit in the equation?
Looking at the accounting equation, you might wonder how revenues, expenses and dividends fit in the balance. Consider the following example. As a telecommunications consultant, you sell a service for $1000. Your cash balance (an asset) would increase by $1000, and so would your revenue. But where does the revenue appear in the equation to keep the balance? In the journal entry, an accountant would record an increase of $1000 in your assets (one side of the equation) and correspondingly record an equal increase in your retained earnings (a part of the shareholders’ equity, the other side of the equation). The revenue is recorded under the retained earnings/shareholders’ equity because the $1000 was generated though theoperations of your company. It helps to know, or keep in mind, that the income statement (which tracks revenue and expenses) is a temporary statement and at the end of the fiscal period, its journal entries are closed and its numbers transferred to the retained earnings a
