An increase in expenses will have the effect of reducing owner's equity.

Question

Quizplus · Accepted Answer

Owner's equity is the residual interest in the assets of a business after deducting all liabilities. An increase in expenses will reduce the net income of the business, which in turn reduces owner's equity. This is because expenses represent costs incurred by the business to generate revenue, and when expenses increase, the profitability of the business decreases, which ultimately reduces the amount of money that belongs to the owner (i.e. owner's equity).

An Increase in Expenses Will Have the Effect of Reducing