Net income is not cash

1. Net Income Is Not Cash
Let us consider a simple illustration.
An entrepreneur has an opportunity to take over a fully equipped and furnished restaurant for a
rental cost of $4,000 a month. The entrepreneur decides that a cash savings of $20,000 should
be sufficient working capital to start the business, after which the cash from sales revenue
should keep the business going and allow a withdrawal of $2,500 a month as a salary. Prior to
opening, the proprietor’s balance sheet would look like this: