Accounting Basics 101

Discover how a balance sheet acts as a financial map, showing what a company owns, what it owes, and its worth at a specific moment, like a time-freeze photograph.

Understand liabilities on the balance sheet as what a company owes, split into current liabilities and non-current liabilities, including accounts payable and long-term debt.

Explore equity as the remaining value of a business after liabilities are paid, and see how double-entry accounting keeps assets equal to liabilities plus equity on the balance sheet.

Learn how the income statement tracks revenues, expenses, and profit or loss over a period, serving as a scoreboard to show if your business earns money.

Revenue is the top line of the income statement—total income from selling goods and services, also called sales or turnover; direct operating expenses such as cost of goods sold follow.

Subtract interest expense from operating income to account for debt financing, then subtract taxes to reveal net income, also called net earnings or net profit, the bottom line.

Uncover the profit versus cash puzzle by comparing cash accounting and accrual accounting, using the balance sheet and income statement as guiding scores.

Learn why accounts receivable are assets when neighbors promise payment, causing cash to lag behind profit. Explore accounts payable and credit terms, where you owe suppliers in the future.

Explain accrual accounting to reveal how accounts receivable and accounts payable drive true daily profit and cash beyond the timing of expenses.

Discover how depreciation accounts for wear and tear on a non-current asset, illustrated by a chocolate melting machine's four-year life and salvage value.

Explore the double declining balance method, an accelerated depreciation approach that front-loads expenses for early tax relief and cash flow needs, illustrated with an $80 asset using 50% per year.

Apply the units of production method to depreciation, tying expense to actual output rather than years. Measure asset life in chocolate bars, as production determines the expense each year.

Explore the statement of cash flows, showing sources and uses in operating, investing, and financing activities, and explain why cash reveals true liquidity beyond accrual income.

Analyze how operating, investing, and financing activities determine a business’s cash flow, showing a net cash movement of 25 and examples like the $45 capital expenditure and a $10 loan.