P04 · Lesson 1 of 10 · 10 min · 4 hands-on tasks
Why Accounting Exists
Accounting is just keeping score, carefully enough that a bank, an investor or the tax office can trust it. See who reads the score and why profit and cash tell different stories.
🎥 Watch it (3 min)
🎬 Situation
Leo is a brilliant bike mechanic. He just opened Two Wheels, a repair shop that also sells bikes. Customers love him. Money comes in, money goes out.
Then his bank asks: "How much profit did you make last month? What does the shop own and owe?" Leo has no idea. That's what accounting is for.
🎮 Play
Post Leo's first week. Tap each event, or press Post the next one, and watch his score update. Notice that profit and cash don't move together.
Balanced: every transaction changes both sides by the same amount.
| Account | Balance |
|---|---|
| Cash (asset) | $0 |
| Owed by customers (asset) | $0 |
| Leo's money in the shop (equity) | $0 |
| Profit so far (equity) | $0 |
Compare it with profit: they're rarely the same.
Who reads the score? Follow Leo's numbers out of the shop.
🏷️ Name it
| Term | Meaning | Two Wheels |
|---|---|---|
| Transaction | Any event that changes the business's money | Selling a bike, paying rent |
| Bookkeeping | Recording every transaction | Leo's daily records |
| Accounting | Organising records into statements | The monthly accounts |
| Revenue | What customers paid, or owe, for what you sold | $4,200 in week 1 |
| Expense | What it cost to earn that revenue | $2,100 in week 1 |
| Profit | Revenue − expenses | $2,100 |
The three financial statements:
| Statement | Question it answers |
|---|---|
| Income statement (profit and loss) | Did we make a profit over a period? |
| Balance sheet | What do we own and owe at one moment? |
| Cash flow statement | Where did cash come from and go? |
🖍️ Like you're five: accounting is a diary for money. Every time money comes in or goes out, you write it down. At the end of the week, you can tell anyone exactly what happened, and they'll believe you because you wrote it all down.
Real life: double-entry bookkeeping, the system you'll learn in this course, was described in print by Luca Pacioli in 1494 and is used, with modern rules on top, by every company from a corner shop to the world's biggest firms. Public companies publish their three statements every quarter or year, checked by independent auditors.
🔨 Do it: 4 tasks
0 / 4 doneTask 1 of 4 · The week's profit
In Leo's first week at Two Wheels bike shop: repairs bring in $1,800, bike sales $2,400. Rent for the week is $500, parts used $900, and his helper's wages $700.
What's the week's profit?
Task 2 of 4 · Profit isn't cash
Same week: a local school owes Leo $1,200 for a fleet repair (it pays next month), and that $1,200 is included in the repair revenue. Everything else was paid in cash.
How much cash did the week actually bring in, after costs?
Task 3 of 4 · Who needs the numbers?
Leo asks his bank for a loan. Which question does the bank care about most?
Task 4 of 4 · The three questions
Put each statement next to its question, in this order: profit, what you own and owe, where cash went.
Tap two items to swap them, or use the arrows.
🧩 Case: The shoebox
⭐ VIPFor two months Leo kept every receipt in a shoebox. Now his bank wants monthly profit figures and a list of what the shop owns and owes before it will lend him $20,000 for a second workshop.
What does Leo do?
What would you do? VIP members make the call, see what happens next across 2 decisions, and get the expert debrief.
🔁 Remember it
Why do businesses follow standard accounting rules?
A business can be profitable and still short of cash because...
Bookkeeping is...
Accounting records every money event in a business so anyone can answer three questions: did we make a profit, what do we own and owe, and where did the cash go? Profit and cash are different scores.
📅 Use it Monday
Find your company's (or a famous company's) latest annual report. Locate the three statements: income statement, balance sheet, cash flow statement. Just find them; we'll learn to read them next.
Create a free account to track your progress.