Question

Which of the following statements is not true? Expenses increase owner's equity. a. O b. Expenses have normal debit balances. Expenses decrease owner's equity. Od. Expenses are a negative factor in the computation of net income.

Answer 1

Question 1:-

The correct answer for the question is Option A - Expenses increase owners equity. Owners equity is the amount that represents the owner's interest in the business. Expenses have a negative effect on the owners equity because they represents the cash outflows of the business. As such, this is the correct answer because this statement is not true.

Option B is incorrect. It is true that expenses have a normal debit balance.

Option C is inocrrect as this statement is true.

Option D is incorrect as it is a true statement that expenses are a negative factor in computation of net income.

Question 2:-

The correct answer is Option B - Assets + Owner's Drawings + Expenses = Liabilities + Owner's Capital + Revenues. This statement accurately reflects the accounting equation and the effect and as such is the correct answer.

Option A, Option C and Option D are all incorrect as they do not represent valid accounting equation.

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