Accidents affect profitability because the costs must be paid from which source?

• A. Increased revenue
• B. Profits
• C. Insurance reserves
• D. Taxes

Answer: (A)

Accidents erode profitability because they add costs that must be paid out of the money the business has after deducting all expenses. Revenue is the money coming in from sales, but paying accident-related costs doesn’t come from extra revenue; it reduces the profits—the amount left after expenses. Insurance reserves may help with some claims, but they aren’t the direct source for ordinary accident costs. Taxes are calculated on profits, not used to fund those costs, so the immediate impact comes from the reduction in profits due to the added expenses.