Which description best defines business expenses?

• A. Items that have no lasting value and negatively affect the business's net worth
• B. Items that increase the business's long-term net worth
• C. Funds paid to investors as dividends
• D. Loans obtained by the business

Answer: (A)

The main idea here is that expenses are costs tied to running the business that are consumed in the short term and reduce the owner's equity. When a business pays for things like rent, utilities, or salaries, those resources are used up in the current period and don’t provide lasting value; they lower net income and, by extension, reduce the business’s net worth. That’s exactly what the description says: items with no lasting value that negatively affect net worth.

In contrast, options describing items that increase long-term net worth would point to assets or investments, dividends are distributions to owners, and loans are financing obligations, not expenses.