USA What are the differences between Dividends (by nature an Asset account) and Revenue (By nature a Liability account)


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I know that dividends are profit and the difference between how much I paid
$15 for a TV
and how much I sold the TV ( product) for $20.
Dividend of $5.
Right?

Now
How a Revenue (liability) is different from a Dividend (asset) ?

Thank you!
 
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bklynboy

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What? I dont even know where to begin on this ...
 

Werner Reisacher

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Your logic is right but you are not using the correct Accounting/Financial terms.
In Accounting, we sort the accounts and lists them under the three categories:
- Assets
- Liabilities
- Profit and Loss
Assets and Liabilities are summarized in the Balance Sheet. Income and Expenses are summarized in the Profit and Loss Statement.

Let's assume you buy in cash a TV for $ 15 and put it into your inventory until the time you sell it. You would book
Debit: Inventory ( an Asset account / it represents a value of the TV that you own.)
Credit: Cash (you reduce the amount of money that you own)

When you take this TV out of the Inventory and sell it for $ 20 in cash, you will book the transaction in two steps:

Taking it out of Inventory at a value of $ 15
Debit: Cost of Sales (you incurred a cost (P&L)
Credit: Inventory (it reduces your asset/the value of the inventory)

Giving the TV to the customer in exchange for $ 20 in cash
Debit: Cash (you turned the value you had in the inventory into cash)
Credit: Sales/Revenue ( you generated an income)

Your Cash account shows now a balance in your favor of $ 5 and the Profit and Loss account shows now a net balance between the revenue and the cost of $ 5. (double-entry accounting) At that moment, the $ 5 are called "profit" that increases your equity in the company.

The word "dividend" describes a process when you use the accumulated $ 5 of profit and distribute them as "A Dividend" to the owners of the business. In practice, smaller companies and in particular sole proprietorships are calling it "distribution of profit" whereas Corporations with multiple shareholders and operating under the tax regime of a C Corporation call it Dividend distribution.
 
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A dividend is neither an expense, nor a revenue. It is the amount of money paid to a shareholder after profits have been allocated to Retained Earnings. So, Retained Earnings would be net of any Dividends paid out.
 

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