Field Notes
On the Frontier
This is a living laboratory. It features experiments in human-AI collaboration, creativity, and business management.
MBA Boot Camp: Connecting the Statements & Key Ratios (2.5)
The three statements are not isolated. They are an interconnected loop.
Net Income at the bottom of the Income Statement flows into the Balance Sheet as "Retained Earnings" (under Equity).
That same Net Income is the starting number at the very top of the Cash Flow Statement.
The final Ending Cash Balance at the bottom of the Cash Flow Statement becomes the "Cash" number at the top of the Balance Sheet's Assets.
MBA Boot Camp: The Balance Sheet (2.3)
If the Income Statement is a video recording, the Balance Sheet is a photograph. It shows the financial position of a company at one exact moment in time.
It is based on the single most important equation in accounting: Assets = Liabilities + Equity
Think of buying a house. If you buy a $400,000 house (Asset), and you take out a $300,000 mortgage (Liability), your personal Equity in the house is $100,000. $400,000 (A) = $300,000 (L) + $100,000 (E). The two sides must always balance.
For a business, Assets are broken down by liquidity (how fast they can be turned into cash). Cash is at the top, followed by inventory, and ending with big things like buildings. Liabilities are broken down by when they are due (short-term bills vs. 10-year bank loans).
MBA Boot Camp: Why Accounting Matters (2.1)
Many people fear accounting because it involves math, but accounting is actually just a highly structured filing system. It's a way of telling a story about what a company did with its resources.
There are three main financial statements that make up this story:
The Income Statement: Did we make a profit over a specific period of time?
The Balance Sheet: What do we own, and what do we owe, at this exact moment?
The Cash Flow Statement: How much actual cash moved in and out of our bank accounts?