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The Necessary Expense Rule is a principle used in Personal Finance and credit assessments, which suggests that expenses should be categorized as necessary if they are essential for maintaining a basic standard of living. This rule helps individuals and lenders determine which expenses are crucial and should be prioritized in budgeting or when considering credit applications. By distinguishing necessary expenses from discretionary ones, individuals can better manage their finances and ensure they meet their essential needs.

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2mo ago

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What is the necessary expense rule three-part test is intended to?

justify the purpose of an expenditure


What does the necessary expense rule three-part test intend to do?

The necessary expense rule three-part test is designed to determine whether an expense is deductible for tax purposes. It evaluates if the expense is ordinary and necessary for the conduct of a business, directly related to the business activity, and not lavish or extravagant under the circumstances. By applying this test, taxpayers can ensure their claimed expenses align with IRS guidelines, promoting compliance and reducing the risk of audits. Ultimately, it helps clarify what qualifies as a legitimate business expense.


Is electricity an admin expense?

Electricity is typically classified as an operating expense rather than an administrative expense. Operating expenses include costs necessary for the day-to-day functioning of a business, such as utilities. Administrative expenses, on the other hand, are related to the general management and support functions of a company, like salaries for administrative staff and office supplies. Therefore, while electricity is a necessary expense, it does not fall under the administrative category.


What is the justification for debiting rent expence?

We debiting the rent expense because when expenses are incurred so the rule of double entry is to debit the expense account and increased liability....it is rules of GAAP.


Are the expense accounts will be closed out after all the closing entires have been posted to the general ledger?

no, it is not necessary