Figure · FIG:foundational/compensation-or-distribution

Compensation or distribution

A decision flow for classifying a transfer to a person who is both an owner and the person who performed the work.

Updated Sep 6, 2026 Review due Nov 9, 2026
Ignore taxes. Under these two stated alternatives, Cash and equity each fall $6,000. Only compensation reduces net income.
Detailed visual description

Alder pays an owner who also works for the company. The comparison is limited to two previously unrecorded events: current administrative wages, or a distribution approved and paid now. Ignore taxes. Compensation creates $6,000 expense, reducing income and equity by $6,000. A distribution reduces equity by $6,000 without reducing income. Both reduce Cash by $6,000. Loans, reimbursements, capitalized employee costs, and settlement of previously recorded liabilities require different analysis.

Review apparatus

Visual provenance and review

Technique
deterministic svg
Role
explanatory
Review state
candidate
Rights
CC0-1.0 · Project-authored teaching diagram

Review notes

  • The comparison is restricted to two explicit alternatives, not a universal classification of every payment to an owner.