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Chapter 2. Accounting 101 > Expenses Reduce Business Income

Expenses Reduce Business Income

On your personal tax return, if you itemize your deductions on Schedule A, you have many types of expenses such as real estate taxes, mortgage interest, and charitable contributions. Each of these can be considered an expense account, or a separate description for the different ways that you spend your money.

Businesses have expense accounts too. Expense accounts reflect the costs of generating income and are shown on financial statements as reductions to income. On a business income tax form, for example, income appears first, reduced by business expenses, and the difference, called net income, is the amount on which income tax is paid.


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