Question

The phrase 'ordinary and necessary' means that an expense must be ________ and ________ for generating a profit.

1) appropriate and helpful
2) inappropriate and unhelpful
3) mandatory and required
4) optional and unnecessary

Answer 1

The phrase 'ordinary and necessary' means that for generating a profit, an expense must be appropriate and helpful. This is a standard used in determining tax deductions for business expenses.

Step-by-step explanation:

The phrase 'ordinary and necessary' refers to a business expense that must be both common and accepted in the trade or business, as well as helpful and appropriate for the business to operate and generate a profit. Therefore, the correct answer to the question is that an expense must be appropriate and helpful for generating a profit. This standard is a guiding principle for businesses when they deduct expenses for tax purposes.

As such, the expenses should be reasonable and directly related to the business activities. To qualify as 'ordinary,' the expense should be something that is commonly accepted in the industry. To qualify as 'necessary,' it does not have to be indispensable but it must be appropriate for the business.