Expenses are regular cash payments by a corporation to its stockholders.
Dividends represent a return of the company’s profits to its owners, the
One of the differences between a partnership and a corporation is that owners
of a partnership have limited liability.
Limited liability means the stockholders are not held personally responsible
for the financial obligations of the corporation.
One advantage of the corporate form of business is double taxation.
Double taxation refers to a corporation’s income being taxed twice—first when
the company earns it and pays corporate income taxes on it, and then again when
stockholders pay personal income taxes on any amounts the firm distributes to
them as dividends.
Financial statements are periodic reports published by the company for the
purpose of providing information to managers.
The balance sheet is a financial statement that reports the company’s revenues
and expenses over an interval of time.
The statement of stockholders’ equity is a financial statement that summarizes
the changes in stockholders’ equity over an interval of time.
The two primary components of stockholders’ equity include common stock and
Common stock represents an external source of stockholders’ equity, whereas
retained earnings represents an internal source.
Retained earnings represents the cumulative amount of net income earned over
the life of the company that has notbeen distributed to stockholders as
Dividends are considered an expense in running the business and reported in the
All cash transactions reported in the statement of cash flows are classified as
(1) operating activities, (2) investing activities, or (3) financing