I am trying to understand this diagram of corporations from "Rich Dad Poor Dad." I can't really make sense out of this diagram.
These types of diagrams appear all throughout Kiyosaki's Rich Dad, Poor Dad book. The arrows in the diagrams represent cash flow.
For example, the first two diagrams of this type in the book are:
The idea being presented here is that an asset generates income, and a liability generates expenses. According to the book, rich people spend their money buying assets, while middle class people buy liabilities.
The diagram you posted above does not appear in the edition of the book I have (Warner Books Edition, printed in 2000). However, the following similar diagram appears in the chapter titled "The History of Taxes and the Power of Corporations":
The idea behind this diagram is to demonstrate what the author considers the tax advantages of a personal corporation: using a corporation to pay for certain expenses with pre-tax dollars. Here is a quote from this chapter:
Employees earn and get taxed and they try to live on what is left. A corporation earns, spends everything it can, and is taxed on anything that is left. It's one of the biggest legal tax loopholes that the rich use. They're easy to set up and are not expensive if you own investments that are producing good cash flow. For example; by owning your own corporation - vacations are board meetings in Hawaii. Car payments, insurance, repairs are company expenses. Health club membership is a company expense. Most restaurant meals are partial expenses. And on and on - but do it legally with pre-tax dollars.
This piece of advice, like so much of the book, may contain a small amount of truth, but is oversimplified and potentially dangerous if taken a face value. There are many examples, as JoeTaxpayer mentioned, of people who tried to deduct too many expenses and failed to make a business case for them that would satisfy the IRS.