How to calculate revenue and expenses from assets liabilities?

Accounting Dec 16, 2020

Expert Solution

Answer:

As per the accounting equation,

Assets = Liabilities + (Revenues - Expenses) + Dividends

Explanation:

The net profit represents the difference between the total revenues and the total expenses and it is added to the retained earnings in the balance sheet which forms part of the stockholders' equity.

And as per the balance sheet equation,

Stockholders' equity = Total assets - Total liabilities

So using the equation,

We can determine the net income first and from it, we can determine the revenues and expenses.

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