The Accounting Game

Notes

• Brilliant. Accounting explained through a lemonade stand
• Balance Sheet: Assets always = Liabilities + Owner’s Equity
• Concept of Payables and Receivables: the accrual method does not follow cash
• FIFO and LIFO for inventory, used in “creative accounting”
• Expenses (such as interest or a helper) affect earnings
• Income Statement: measures Net Profit. Sales - COGS - Expenses
• Fixed Assets and Depreciation, the stand and a new cart
• Liquidity problems: running out of cash at the store right before the game was a poor choice. The most important lesson is this. Mistakes happen. Brief mention of the Cash Flow Statement
• Key indicators: past performance and competitors. Use the ratio among Expenses, Net Profit, and COGS to see how different periods performed.