Key Concepts
What is Income?
Money the business earns this year (fees, sales)
What is an Expense?
Costs used up to earn income this year
What is Profit? (VERY IMPORTANT)
Profit = Income − Expenses
Profit is what is left after the business pays all its expenses
Who does profit belong to?
The owner
What is capital?
Capital is the owner’s claim on the business
Capital changes because of:
Profit (increases capital)
Drawings (decreases capital)
Extra investment (increases capital)