Module 1 of 5 in Financial literacy and accounting
Profit, cash and what a business owns
The three ideas the rest of accounting is built on. Revenue and profit, why profit is not cash, and the balance sheet equation.
3 lessons in this module. Progress is saved in your browser as you go.
Before reading full financial statements, you need three building blocks. What a business earns and spends, why the profit it reports is not the same as the cash it has, and how everything it owns is funded either by borrowing or by its owners. This module uses small made-up businesses so that every number is easy to follow.
By the end of this module you should be able to
- Distinguish revenue, expenses and profit, and calculate profit at different levels from a simple set of figures.
- Explain why a profitable company can run short of cash, and why profit and cash flow differ.
- Use the equation assets = liabilities + equity to read and check a simple balance sheet.
Lessons in order
Module test
10 questions, chosen at random from a bank of 33 questions and balanced across this module's learning goals and difficulty levels. Every question comes with an explanation. You need 80% to pass, and you can retake it as often as you like with a fresh set of questions.
This module builds on
- What is a share?: Profits belong to the shareholders, so it helps to know what owning a share means before studying profits.
- Why companies issue shares: Equity on the balance sheet is the money owners put in plus profits kept, which builds on how companies raise money.