Final answer:
Paying $500 for rent is an expense that will lower the business's net income, thereby reducing the owner's equity. Rent is a fixed cost that businesses must pay, affecting the company's profitability and equity value.
Step-by-step explanation:
When a business pays $500 for rent, it's considered an expense. This expense will decrease the company's net income for that period. Since net income is a component of owner's equity (also known as shareholders' equity), any decrease in net income will correspondingly reduce the equity of the business. Essentially, expenses like rent reduce the profitability of the company, and thus, the value that owners can claim after liabilities are settled.
For instance, in the example of the Yoga Center, paying the rent is a fixed cost the business incurs regardless of its operational status. When the center earns revenues of $20,000 and has variable costs of $15,000, the payment of rent would still need to be accounted for in assessing profit or loss for the period. If the rent is not covered by other revenues, equity decreases as a result.