13. Acc 101 - Tying it All together

May 01, 2026 03:20 · 9:03 · English · Whisper Turbo · 1 speakers
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0:13
S… Speaker 1 (13. Acc 101 - Tying it All together)
Accountants prepare three different financial statements or financial report cards. A balance sheet, an income statement, and a cash flow statement. If you've listened to the prior coaching tutorials of Accounting 101, you know that balance sheets have three parts. Things and stuff, which accountants call assets, what a business owes, which accountants call liabilities, and what a business owns, which accountants call equity.
0:42
S… Speaker 1 (13. Acc 101 - Tying it All together)
You also know that a balance sheet is a snapshot or a moment in time as of a certain date. You also know that another report card used by accountants is called an income statement. An income statement is designed to report on your revenue during the month and record all the costs and expenses incurred in producing and delivering that revenue during that month. Revenue minus expenses equals profits.
1:12
S… Speaker 1 (13. Acc 101 - Tying it All together)
Unlike a balance sheet, however, an income statement is a movie of all the revenue and all the expenses during a specific time period, like a month or a year. An income statement is also a theory because you can't spend your profits. You can only spend cash. The third report card prepared by accountants is called a cash flow statement.
1:38
S… Speaker 1 (13. Acc 101 - Tying it All together)
This report card is designed to keep track of your various sources and uses of cash during a certain time period, like a month or a year. By adding the beginning cash balance at the start of the month to the cash float from three different sources during the month, accountants can tell you how much ending cash you have at the end of the month.
2:04
S… Speaker 1 (13. Acc 101 - Tying it All together)
Like an income statement, a cash flow statement is a movie. It tells the story of what happened to the cash during the month. However, unlike an income statement, a cash flow statement is a fact and not a theory. The reason is because you can spend your cash and you can't spend your earnings or your profits. Don't believe me?
2:28
S… Speaker 1 (13. Acc 101 - Tying it All together)
Next time you go out to eat, offer to pay your bill with some of your retained earnings. It can't be done. And the reason is because earnings cannot be spent, only cash. To help you understand this, look again at the balance sheet, and you will see that cash in the upper left-hand corner is as far as it possibly can get from the earnings, which are in the lower right-hand corner. They're not the same thing.
2:57
S… Speaker 1 (13. Acc 101 - Tying it All together)
So these are the three report cards used by accountants to translate all the financial activities of a business into numbers. So how do they fit together? On a balance sheet in the lower right-hand corner in the own or equity section is the word earnings. There are actually two types of earnings, and they're broken out and shown as two separate lines in the equity section of a balance sheet.
3:26
S… Speaker 1 (13. Acc 101 - Tying it All together)
Earnings in the current period, these are the earnings of the profits that happen in the current time period covered by the current income statement, which might be the earnings for the year to date, for example.
3:39
S… Speaker 1 (13. Acc 101 - Tying it All together)
and retained earnings, earnings or profits that have been accumulated and retained by the business in all the previous time periods. You'll notice that the income statement calculates the earnings of a business in the current time period. It turns out that the number on the ending balance sheet for earnings
4:02
S… Speaker 1 (13. Acc 101 - Tying it All together)
in the current period is the exact same number as what was reported on the income statement as the bottom line. So we might say that the earnings displayed on the balance sheet are a world atlas of the earnings, and the income statement is the street map of those earnings. The balance sheet might say that your earnings in the current time period are 50.
4:29
S… Speaker 1 (13. Acc 101 - Tying it All together)
But if you wanted to know exactly how you got to this number 50, you could look at the income statement, which would tell you exactly how much you had in revenue and all the costs and expenses incurred during this time period to produce 50 in earnings. You'll also notice that the balance sheet has a category in the upper left-hand corner under things and stuff called cash.
4:56
S… Speaker 1 (13. Acc 101 - Tying it All together)
As we just discussed, one of the movies that accountants prepare is called a cash flow statement. It turns out that the ending cash number on the statement of cash flow is the exact same number as the amount of cash reported on the ending balance sheet. If the cash on the ending balance sheet is 75, the ending cash balance on the statement of cash flow will also be 75.
5:26
S… Speaker 1 (13. Acc 101 - Tying it All together)
The cash flow statement shows you how much cash you started with at the beginning of the period and the amount of cash you added or used during the current period from operating, investing, and financing activities. If we add the beginning cash balance to the cash flow we generated or used during the current time period, we will see the ending cash balance on the statement of cash flow.
5:52
S… Speaker 1 (13. Acc 101 - Tying it All together)
Once again, the balance sheet serves as a world atlas. You know you have 75 of cash, but if you wanted to know exactly how you got to 75 of cash, look at the street map of the cash flow statement. So if we connected all three accounting report cards together, we'd see this.
6:14
S… Speaker 1 (13. Acc 101 - Tying it All together)
A world atlas which shows the profits for the current time period and the ending cash as of the end of the time period. If we want to know exactly how we got to the profits or the cash number, we could look at the street map of an income statement to see the profit calculations, and then we could look at the cash flow statement to see the cash calculations. Here's a critical distinction.
6:38
S… Speaker 1 (13. Acc 101 - Tying it All together)
The reason there's an income statement and a separate report card for the cash flow statement is because profits are not the same as cash. We need an income statement to keep track of profits and earnings, and we need a cash flow statement to keep track of cash. Profits are the theory of whether your sales did or did not exceed your expenses. Cash, on the other hand, is a fact. Hear me now. Believe me later.
7:08
S… Speaker 1 (13. Acc 101 - Tying it All together)
I'm going to tell you that making this distinction between profits and cash will fundamentally shift your perspective and allow you to start thinking about and managing the business into your business in an entirely new way.
7:24
S… Speaker 1 (13. Acc 101 - Tying it All together)
accounting systems like quickbooks or peach tree or myob are financial transaction recording tools they are not business optics tools once you have a basic understanding of the accounting report cards and what they do it gets a whole lot easier to figure out how to implement a system that measures your results and alerts you to specific activities that you can change so that you can produce better financial results
7:53
S… Speaker 1 (13. Acc 101 - Tying it All together)
Unless you understand each of the major dials in your business cockpit and know what they do, you cannot successfully measure. If you cannot measure, you will either continue to struggle or you'll fail because key information goes undetected. Those silent but deadly killers that will sabotage your business every single time. Let me be clear about one more thing.
8:21
S… Speaker 1 (13. Acc 101 - Tying it All together)
understanding the basics of accounting and financial report cards will not make you rich on the other hand being ignorant about financial school boards and business optics will definitely retard your ability to maximize and sustain any wealth you do create
8:39
S… Speaker 1 (13. Acc 101 - Tying it All together)
Understanding the dials, identifying the real problems, and knowing precisely which levers to push and dials to turn is critical to radically accelerating your profits and cash flow. CFO School Board will show you exactly where to focus to drive your financial results.

This transcript was generated by AI (automatic speech recognition). May contain errors — verify against the original audio for critical use. AI policy

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