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Chapter 4
Where Your Numbers Come From
I got this number on my report — where did it come from?
25 min read
This is real
"David hears the same question every week: 'where did this come from?' He wishes managers understood the five foundation events."
— David, Finance Manager
Key concepts
Concept 1
The Accounting Equation
Assets = Liabilities + Equity. Every transaction keeps this equation in balance.
Concept 2
Five foundation events
Owner investment, taking a loan, buying inventory, invoicing a customer, buying equipment. Master these and the rest follow.
Concept 3
Buying inventory ≠ immediate expense
Inventory is an asset until it's sold. That's why your approved purchase doesn't appear on the P&L the day you sign.
Try it: Business Events Simulator
See how each business event flows through all three financial statements in real-time.
Open SimulatorFlashcard deck
Tap a card to flip.
Knowledge check
Q1
What is the accounting equation?
Q2
You approve a $10,000 inventory purchase. What hits the P&L?
Q3
Equipment purchases land on which report first?
Questions to ask your finance team
- 1.Can you show me the five largest transactions that hit my team's cost centre last month?
- 2.We bought equipment last quarter — is that on the P&L or the Balance Sheet?
- 3.If I approve a purchase order today, when does it hit my budget?