Where do the owner’s personal expenses belong?
According to the business entity assumption, personal expenses of the owners that were paid by the business are not included in the income statement but instead are shown in the statement of owner’s equity as withdrawals. Similarly, salaries withdrawn by the owner or owners of a sole proprietorship or partnership usually are treated as withdrawals rather than expenses of the business because the owner is not considered an employee. Instead, the salary withdrawn by the owner is considered a distribution of the profits of the business to the owner. Operating expenses often are categorized further as “selling expenses” and general and administrative expenses. Immaterial expenses may be combined rather than shown separately, particularly in financial statements used by parties other than management. As with cost of goods sold, the matching principle applies to operating expenses. The salaries and wages expense consists of the salaries and wages earned by employees during the period even th
