An Increase In An Expense: A. Decreases Owners Equity B. Increases Assets | MCQ Answer

The correct answer of this multiple choice question (MCQ) is (A). Decreases Owners Equity as Expenses are less than Revenues and are necessary to earn profits for the business. So, increase in Expenses decrease Owner’s Equity.

Example 1: Paid Rent Of $5000. What is the effect of this transaction on Owner's Equity?

When the business paid rent of $5000, then we debit rent expense account and credit cash account. The rent expense affects the owner's equity as it is the result of operations of the business, so it decreases the owner's equity by $5000.

Example 2: Paid Salaries to employees of $3000. What is the effect on Owner's Equity?

We debit salaries account of $3000 and credit cash account of $3000. The salaries expense is also decreasing the owner's equity as salaries are paid to employees to run daily working of the business.

So, expense accounts decrease the owner's equity or these have negative impacts on owner's equity but these are necessary to occurred to earn profits for the business. Also, expenses are related with the daily activities of the business to conduct profitable activities of the business.