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Chapter 2
How the Machine Works
The same amount shows up in two different places on two different reports.
20 min read
This is real
"James approves a $12,000 purchase. It shows up on the P&L and on a different report — with a different number. He doesn't know which is right."
— James, Operations Manager
Key concepts
Concept 1
Double-entry system
Every transaction touches two accounts. That's why one purchase can appear on two reports — it isn't duplication, it's structure.
Concept 2
The five account types
Assets, Liabilities, Equity, Revenue, Expenses. Every line on every report fits into one of these five.
Concept 3
The accounting pipeline
Event → record → classify → report. Once you see the pipeline, you stop being surprised by where numbers land.
Flashcard deck
Tap a card to flip.
Knowledge check
Q1
Why can one transaction appear on two reports?
Q2
Which is NOT one of the five account types?
Q3
What is the accounting pipeline?
Questions to ask your finance team
- 1.What chart of accounts categories do most of my team's expenses fall into?
- 2.When I approve a purchase order, what happens to it before it shows up on my report?
- 3.Is there a way I can see transactions as they're posted, rather than waiting for month-end?