New words in this lesson
Asset
Something the business owns or is owed that has value. Example: Money in the bank, the espresso machine, money customers owe the café.
Liability
Something the business owes to someone else. Example: An unpaid bill from Bean Supply, a bank loan, the credit card balance.
Equity
The owner's share of the business: what's left of the assets after paying all liabilities. It grows with the owner's investment and with profit.
Accounting equation
Assets = Liabilities + Equity. Everything the business owns was paid for either by borrowing (liabilities) or by the owner and profits (equity). It must always balance.
Owner's investment
Money the owner puts into the business from their own pocket. It increases equity.
Income
Money the business earns by selling goods or services. Income increases equity. Example: Food sales, beverage sales and catering income.
Expense
A cost of running the business. Expenses reduce profit, and so reduce equity. Example: Rent, electricity, wages.
Net income
What's left after all costs and expenses are taken from income. A negative number is a net loss.