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Net income is not cash
1. Financial Management
TOPIC
Jl IKPN Bintaro No 1, Pesanggrahan,
Tanah Kusir, Jakarta, Special Capital
Region of Jakarta 12330, Indonesia
advantages and
disadvantages of
budgeting
Net$Income$Not$Cash
2. 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: