TOOL · STATEMENT WALKTHROUGH
Watch profit and cash move apart
Seven everyday transactions, three statements, two checks. Pick one to see what it does, or post several and watch the running totals still balance. Then predict one yourself.
STATEMENT WALKTHROUGH
Sells goods for $100 on credit. They cost $60 from inventory.
Profit arrives now; cash waits for the customer. Only the tax is paid.
| Revenue | +$100 |
|---|---|
| Cost of goods sold | +$60 |
| Depreciation | — |
| Pre-tax profit | +$40 |
| Tax (assumed 25%) | +$10 |
| Net income | +$30 |
| Cash | −$10 |
|---|---|
| Receivables | +$100 |
| Inventory | −$60 |
| PP&E | — |
| Payables | — |
| Deferred revenue | — |
| Debt | — |
| Retained earnings | +$30 |
| Operating | −$10 |
|---|---|
| Investing | — |
| Financing | — |
- Assets +$30 = liabilities + equity +$30
- Cash −$10 = operating + investing + financing −$10
Accrual accounting, an assumed 25% tax rate paid in the same period, amounts in dollars. A practice run: nothing here is saved.