Expenses can be amounts paid to owners

Question

BlackTom AI · Accepted Answer

The statement given is: 'Expenses can be amounts paid to owners'. This is a true/false question about how expenses are defined in accounting.
Option 1: True. This option claims that expenses can be amounts paid to owners. In accounting terms, expenses are the costs incurred in the process of generating revenue, such as salaries, rent, utilities, and supplies. Payments to owners, such as dividends or owner drawings, are not considered expenses; they are allocations of equity or withdrawals of capital. Therefore this option is incorrect.
Option 2: False. This option asserts that the statement is not correct. Indeed, while businesses may transfer funds to owners for compensation or distributions, those payments are not recorded as expenses in the income statement. They reduce equity or are classified as drawings/dividends on the balance sheet, not as expenses affecting net income. Consequently, this option correctly identifies the misclassification and is the accurate choice for this question.
In summary, the core distinction is that expenses reflect the cost of doing business and reduce net income, whereas payments to owners reduce owner equity and are not expenses. The mistaken belief that owner payments are expenses stems from conflating distributions with operating costs.

MCD2150 - T2 - 2025 Week 3 Workshop 1 Quiz

Expenses can be amounts paid to owners

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