What is the relationship between Debt & Profit/Loss?
The business has an obligation to repay the debt (principal & interest) Repaying interest on the debt applies whether the business makes a profit or
The business has an obligation to repay the debt (principal & interest) Repaying interest on the debt applies whether the business makes a profit or
Debt A provider (e.g bank) lends an amount to the business The business has an obligation to repay the amount borrowed (debt) Amount borrowed is
Drawings The owner can draw / withdraw / take out cash and assets from the business The bank (cash) balance or the asset (e.g. vehicle)
Equity Ownership in the business. No obligation to pay back equity Debt The funder lends the amount to the business. The business has an obligation
Sweat Equity, is where the entrepreneur Contributes time & effort, your “sweat” Contributes knowledge, skills & connections
Owner’s Equity Owner’s Equity = Capital Contribution + Changes below Owner’s Equity Computation Capital contribution by the owner + Net Profit – Net Loss –
Equity means Ownership in the business Interest or Claim to the Assets in the business
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