Write a memo that explains the differences and similarities between expenses Home and withdrawals.
Expenses and Withdrawals: A descriptive analysis
Expenses:
The cost of operations that a company or business incurs to generate revenue is known as the expenses. The success of any business comes at a cost, and this cost could be anything from paying wages and salaries to purchasing assets. A business requires various kinds of assets to assist the owner in his/her company’s operations which will lead to inclined sales for the company. The costs can be referred to as expenses.
Withdrawals:
When the owner or owners of a business draws funds out of the company’s assets for their personal use it is called withdrawals. It means the process of removing funds from an account. Withdrawals are an important phenomenon for any company and they form an integral part of any business since they affect the owner’s equity (Patrick & Scobbie, 2019, p.59).
Difference between Expenses and Withdrawals:
- The most striking difference between the two concepts viz. expenses and withdrawals is that expenses do not necessarily decrease the cash whereas in the case of withdrawals, cash is always reduced.
- It so happens that all the deals of a business are not possible to be carried out in cash and hence the concept of credit transaction gave birth to accounts payable Hence the conclusion derived from this is that expenses do not always decrease cash.
- Moreover, expenses are incurred mainly by the consumption of assets and services received by the business while withdrawals take place for private utilization. Assets decrease when expenses are paid while liabilities increase when not paid. Withdrawals only reduce assets and do not incur liabilities.
- Examples of expenses are wages and salary for the company employees; direct materials, direct labor, and manufacturing overhead for products sold, etc. Examples of withdrawals are the withdrawal of a partner or owner made from the business (Tacchino, 2019, p.40).
Similarities between expenses and withdrawals:
The main similarity is that both expenses and withdrawals reduce the owner’s equity. Expenses and withdrawals are expected to be deducted or reduced from the revenues earned (Tjandra Marpaung & Muda, 2022, p. 2313). When the owner receives the earnings or the revenues of the business, the expenses and the withdrawals are offset against this income in the process of determining the net income.
Reference list:
Patrick, F. D., & Scobbie, A. (2019). Some aspects of withdrawals in ordinary life business. Transactions of the Faculty of Actuaries, 31, 53-119.
Tacchino, K. B. (2019). 401 (k) Hardship Withdrawals. Journal of Financial Service Professionals, 73(4).
Tjandra, G., Marpaung, M., & Muda, I. (2022). How Accounts, Debits, and Credits are Used to Record Business Transactions. Journal of Positive School Psychology, 6(3), 2311-2323.
