📖 The Story of Sutra Café: Understanding Financial Statements

 📖 The Story of Sutra Café: Understanding Financial Statements

Ravi, Meera, and Arjun had always dreamt of running a small business together. After finishing their studies, they decided to open a cozy little café near their college campus. They named it Sutra Café, believing that it would weave together their passion for coffee, friendship, and entrepreneurship.

In the very first month, their café was buzzing with customers—students, professors, and office-goers all loved their coffee and snacks. By the end of the month, the friends were excited to know whether they had really made money or not. But how could they be sure? Their mentor, Professor Shah, smiled and said, “Every business speaks the language of financial statements. If you learn to read this language, you’ll always know the true story of your café.”

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Income Statement – The Story of Profitability

Professor Shah first taught them about the Income Statement, also called the Profit and Loss Statement. This statement tells how much the café earned and spent in a particular period.

When they prepared their first Income Statement, they saw that Sales Revenue was ₹2,50,000. Out of this, they spent ₹1,00,000 on milk, coffee beans, bread, and other ingredients. This was called the Cost of Goods Sold (COGS). Subtracting this from their sales, they discovered their Gross Profit was ₹1,50,000.

But the story didn’t end there. They still had to pay expenses like Rent (₹30,000), Salaries (₹40,000), Utilities (₹10,000), and Marketing (₹20,000). After deducting these, their Operating Profit was ₹50,000. Finally, after paying Taxes of ₹10,000, they were left with a Net Profit of ₹40,000.

Ravi’s eyes sparkled as he said, “So this statement shows whether we are actually running our café successfully!” Professor Shah nodded, “Exactly. The Income Statement tells your performance story over time.”

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Balance Sheet – The Snapshot of Financial Health

Next, Meera asked, “But what about what we own and what we owe?” That’s when Professor Shah explained the Balance Sheet, which gives a snapshot of the business’s position on a particular date.

On March 31st, Sutra Café prepared its Balance Sheet. On the Assets side, they listed Cash ₹60,000, Inventory ₹40,000, Accounts Receivable ₹20,000, and their Coffee Machine and Furniture ₹2,00,000. This gave them total assets of ₹3,20,000.

On the Liabilities side, they owed suppliers ₹30,000 and had to pay wages worth ₹10,000—these were Current Liabilities. They also had a Bank Loan of ₹1,00,000, which was a Long-term Liability. Together, their liabilities came to ₹1,40,000.

Finally, the Equity section showed Owners’ Capital ₹1,50,000 and Retained Earnings ₹30,000, making total equity ₹1,80,000. Professor Shah pointed at the bottom line: Assets = Liabilities + Equity (₹3,20,000 = ₹1,40,000 + ₹1,80,000). The equation balanced perfectly.

Meera realized, “This is like a photograph of our café’s financial health on a given day.”

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Cash Flow Statement – The Movement of Money

Arjun then raised an important question: “If we made a profit of ₹40,000, why do I feel like we still don’t have much cash in hand?” That’s when Professor Shah explained the third and final statement—the Cash Flow Statement.

They discovered that cash does not move exactly the same way as profits. In Operating Activities, Sutra Café received ₹2,20,000 in cash from customers but paid ₹1,70,000 for suppliers, salaries, and rent, leaving ₹50,000 net cash from operations.

In Investing Activities, they spent ₹30,000 on buying a new oven. This was an outflow of cash.

In Financing Activities, they borrowed ₹1,00,000 from the bank but repaid ₹20,000, leaving a net inflow of ₹80,000.

Finally, their cash balance became Opening Cash ₹10,000 + Net Cash Flow (₹50,000 – ₹30,000 + ₹80,000) = ₹1,10,000.

Arjun finally understood: “So profit doesn’t always mean cash. This statement shows how money actually moves in and out of our business.”

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Connecting the Dots

By now, all three friends could see how these financial statements connected. Their Net Profit of ₹40,000 from the Income Statement went into Retained Earnings in the Balance Sheet. The Balance Sheet showed a cash balance of ₹1,10,000, and the Cash Flow Statement explained how that balance was reached.

Professor Shah concluded, “The Income Statement tells your performance, the Balance Sheet tells your position, and the Cash Flow Statement tells your liquidity. Together, they form the complete story of Sutra Café.”

Ravi, Meera, and Arjun smiled. They had not only built a café but had also learned the true language of business. From that day forward, financial statements were no longer boring documents—they were the diary of their café’s journey.

The End