Step 8 of 11 in Business Hall
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This course is education only. It is not tax, legal, investment or accounting advice. Rules depend on your country and your situation, so consult a licensed accountant. All money examples are practice numbers in "your currency".
Before this course: Bookkeeping in Practice (course 2.13.2). Think of three photos of the same shop. One photo shows what the shop earned and spent this month. One shows everything the shop owns and owes on one day. One shows where the cash came from and where it went. They are three views of one business, so the numbers must agree.
| Statement | Key numbers |
|---|---|
| P&L, January | Sales 10,000; cost of goods sold 4,000; other expenses 3,000; net profit 3,000 |
| Balance sheet, 31 January | Assets 13,300; liabilities 4,100; equity 9,200 |
| Cash flow, January | Cash at start 5,000; net change +300; cash at end 5,300 |
Check the link: opening equity 7,200 + profit 3,000 - owner draw 1,000 = 9,200. And 13,300 (assets) = 4,100 (liabilities) + 9,200 (equity).
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[Host] "Your business has three reports. Each one shows the same business from a different side."
[Text on screen: P&L = a period. Balance sheet = one day. Cash flow = a period.] "The profit and loss covers a period. The balance sheet is a snapshot of one day. The cash flow covers a period."
[Screen: profit 3,000 flowing into equity] "Profit flows into equity. Ending cash on the cash flow must equal cash on the balance sheet."
[Host] "If the three do not agree, the books have an error. Find it before you share anything."
Take last month's books (or the practice numbers) and prove the two links: profit into equity, and ending cash into the balance sheet.
Copy this, open Claude, paste it, and Claude will walk you through the lesson step by step.
For a grown-up: Claude is for adults (18+). Copy this, paste it into Claude, and use the answer to explain the lesson to your child.
I'm learning "Small Business Reporting: financial statements and cash flow" on The Future Market. Lesson 1: "The three statements and how they connect". What the lesson teaches: - Before this course: Bookkeeping in Practice (course 2.13.2). You already close a month, reconcile the bank, track money owed and build a four-page month-end pack. This course turns those books into full financial statements and uses them to plan. - Profit and loss statement (P&L, income statement): revenue minus costs over a period (a month, a quarter, a year). It ends with net profit. - Balance sheet: a snapshot on one date of what the business owns (assets), what it owes (liabilities) and what is left for the owner (equity). Assets = Liabilities + Equity. - Cash flow statement: all cash that came in and went out over a period, grouped as operating, investing and financing. - How they connect: - Net profit from the P&L is added to equity on the balance sheet (and owner draws are taken off). - The ending cash on the cash flow statement equals the cash line on the balance sheet. The exercise I'm working on: Take last month's books (or the practice numbers) and prove the two links: profit into equity, and ending cash into the balance sheet. --- I'm stuck. Please: 1. Explain the main idea in plain, simple words with one everyday example. 2. Walk me through the exercise one small step at a time. Ask me what I've done so far before giving the next step. 3. Don't just give me the final answer. Help me do it myself, and check my work when I share it.
I'm a parent helping my child (about 8 years old) with a lesson called "The three statements and how they connect" from the course "Small Business Reporting: financial statements and cash flow". Here's what the lesson says: Before this course: Bookkeeping in Practice (course 2.13.2). Think of three photos of the same shop. One photo shows what the shop earned and spent this month. One shows everything the shop owns and owes on one day. One shows where the cash came from and where it went. They are three views of one business, so the numbers must agree. The activity: Take last month's books (or the practice numbers) and prove the two links: profit into equity, and ending cash into the balance sheet. --- Please explain this so an 8-year-old understands: short sentences, a fun everyday example, and no hard words. Then give me 3 simple questions I can ask my child to check they understood, and a way to do the activity together, one tiny step at a time.
This lesson is part of full access: every course and every level for one payment.
This lesson is part of full access: every course and every level for one payment.
This lesson is part of full access: every course and every level for one payment.
This lesson is part of full access: every course and every level for one payment.
This lesson is part of full access: every course and every level for one payment.
This lesson is part of full access: every course and every level for one payment.
This lesson is part of full access: every course and every level for one payment.
Which statement covers a period, and which is a snapshot of one day?
The profit and loss and the cash flow statement cover a period; the balance sheet is a snapshot of one day.
How does net profit reach the balance sheet?
It is added to equity (and owner draws are taken off).
What must the ending cash on the cash flow statement equal?
The cash on the balance sheet and the reconciled bank balance.
Revenue 10,000 and gross profit 6,000. What is the gross margin?
60%.
Why does depreciation reduce profit but not cash?
It spreads the cost of an item bought earlier, so no cash leaves in that month.
Assets 13,300 and liabilities 4,100. What is equity?
9,200.
Current assets 10,900 and current liabilities 2,000. What is working capital?
8,900.
In the indirect method, what does an increase in money owed to you do to operating cash?
It reduces it, because the money is not yet received.
Why is an owner draw not an expense?
It is money the owner takes out of equity, not a cost of running the business.
Fixed costs 3,000 and gross margin 60%. What are the break-even sales?
5,000.
Why run a downside case in a cash forecast?
To find the lowest cash point and plan an action before a gap happens.
Why should a tax payment be in your cash forecast?
It is a large cash outflow on a known date; leaving it out can hide a gap.
Name two red flags a lender may see in your statements.
Cash that does not match the bank, a balance sheet that does not balance, a changed accounting method, or unexplained large "other" lines.
Who should prepare statements that a lender or law requires to be reviewed?
A licensed accountant.
This lesson is part of full access: every course and every level for one payment.
This lesson is part of full access: every course and every level for one payment.
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