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1.4. Where is everything placed?

Assets, liabilities and Shareholders equity are placed on the balance sheet
and strictly follow the rule Assets = liabilities + Shareholders Equity (see
figure 1).
Revenues (including gains) and expenses (including losses) are placed in the
income statement (see figure 2).
Dividends are placed either in the statement of retained earnings (Figure 3)
or in the statement of shareholders equity (figure 4) to reduce equity. With
that said, dividends are not a type of expenses.
Revenues, expenses and dividends are called temporary accounts or
nominal accounts. A temporary account will not be carried over to the
next period, but will be closed to a permanent account. For example, in
2014, you make $10,000 revenues and in 2015 you make $12,000 revenues.
This $12,000 does not include the $10,000 you made in the previous year.
In other words, the $10,000 revenue in 2014 wasnt carried over to 2015.
All the balance sheets accounts are permanent accounts. Revenues,
expenses and dividends are closed to a balance sheet account called
Retained Earnings.

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