FREE ACCOUNTING FUNDAMENTALS LEARNING PATH

WikiFree original practice workbook

The balance room

CASE STATUS: fictional/synthetic teaching material. Do not present the example as real research, employment experience or measured business performance.

OUTCOME
Prepare a small transaction ledger, income statement, balance sheet and cash-flow reconciliation for a fictional service business.

BEFORE YOU START
Arithmetic, percentages and a spreadsheet or calculator; no accounting software or professional experience.

CASE
Cedar Studio starts with no balances. Ignore taxes, depreciation and financing costs for this deliberately simplified teaching period. All values are in fictional currency units.

INPUTS
Transaction,Amount,Treatment clue
Owner contributes cash,2000,Capital
Buy equipment with cash,500,Asset
Services earned,900,"700 collected, 200 receivable"
Operating expense paid,300,Expense
Owner withdrawal,100,Equity withdrawal


ENTRY CHECK

Question: Is collected cash always revenue?

Self-check: No. Owner capital is cash received but not revenue.

Question: Does buying equipment always equal a current expense?

Self-check: Not in this simplified case; it creates an asset.

Question: What balances?

Self-check: Assets equal liabilities plus equity.

STAGE 1: Classify the transactions

Prerequisite: Arithmetic, percentages and a spreadsheet or calculator; no accounting software or professional experience.

Instruction: Track the economic event separately from its payment. An owner contribution changes equity, a customer invoice can create a receivable, and equipment remains an asset in this simplified period. Give each transaction a reference and explain both sides of the accounting equation. Keeping a clear transaction trail makes later reconciliations possible and prevents cash receipts from being mistaken for income.

Practice task: Classify all five transactions as asset, liability, revenue, expense or owner equity movements. Show the cash effect separately.

Deliverable: A five-row transaction classification.

Acceptance check: The contribution and withdrawal are excluded from revenue and operating expense.

If stuck: If cash and profit move identically, revisit capital and equipment.

Record your work, decisions and evidence:




Record your result against the acceptance check:



STAGE 2: Calculate performance

Prerequisite: Bring your previous output: A five-row transaction classification.

Instruction: The income statement summarizes revenue earned and expenses recognized for a period. It does not list every cash movement. For this case, service revenue is 900 even though only 700 has arrived. The 300 operating expense belongs to the same period. The resulting profit is 600; the owner withdrawal does not reduce that operating result.

Practice task: Build the period income statement and explain why the uncollected 200 is included.

Deliverable: An income statement with a recognition note.

Acceptance check: Revenue 900 minus expenses 300 equals profit 600.

If stuck: Do not subtract the owner withdrawal or the equipment purchase from this simplified income statement.

Record your work, decisions and evidence:




Record your result against the acceptance check:



STAGE 3: Build the closing position

Prerequisite: Bring your previous output: An income statement with a recognition note.

Instruction: A balance sheet is a snapshot at a date. Reconcile cash, receivables and equipment to the closing position rather than using income totals as assets. With no liabilities here, closing equity combines initial capital, earned profit and withdrawals. Equality is necessary but does not prove every classification is correct, so retain the transaction explanations alongside the totals.

Practice task: Calculate closing cash, receivables, equipment and equity, then check the accounting equation.

Deliverable: A balanced closing balance sheet.

Acceptance check: Assets 1800+200+500=2500 equal equity 2000+600-100=2500.

If stuck: If the sheet balances only with a plug figure, trace each transaction instead.

Record your work, decisions and evidence:




Record your result against the acceptance check:



STAGE 4: Reconcile the cash movement

Prerequisite: Bring your previous output: A balanced closing balance sheet.

Instruction: Group cash movements by operating, investing and financing purpose. This educational classification treats the owner contribution and withdrawal as financing, and equipment as investing. Opening cash plus the net movement must equal closing cash. Explaining the difference between profit and operating cash is essential: the uncollected invoice accounts for 200 of that difference here.

Practice task: Prepare the three cash-flow sections and bridge profit to operating cash.

Deliverable: A cash-flow statement and profit-to-cash bridge.

Acceptance check: Operating 400, investing -500 and financing 1900 sum to closing cash 1800.

If stuck: Exclude the unpaid invoice from cash receipts while retaining it in revenue.

Record your work, decisions and evidence:




Record your result against the acceptance check:



STAGE 5: Review the story

Prerequisite: Bring your previous output: A cash-flow statement and profit-to-cash bridge.

Instruction: Review statements together. A cash balance can rise because owners supplied money even when operations are weak. A useful explanation separates performance, liquidity and capital changes without inferring business health from one number. Document simplified assumptions and unresolved items so a reviewer knows which conclusions the statements can support.

Practice task: Write a 180-word owner update and three reconciliation checks. Then model collecting the remaining 200 next period with no new revenue.

Deliverable: A statement review and collection scenario.

Acceptance check: The later collection increases cash and decreases receivables without creating revenue twice.

If stuck: If the collection raises profit again, reverse the duplicate recognition.

Record your work, decisions and evidence:




Record your result against the acceptance check:



WORKED CASE
Closing cash is 1800 and profit is 600. They differ because capital, equipment, withdrawals and the unpaid invoice affect the statements differently. Collecting the receivable later changes asset composition, not the original earned revenue.

FINAL PROJECT
Submit all three statements, the transaction ledger and a one-page explanation. Add a 120 cash expense to the original period and reconcile the updated statements without a balancing plug.

REQUIRED CRITICAL CHECK
The accounting equation and cash reconciliation both hold, and owner movements are not treated as revenue or expense.

SCORING
Score each of the five stage acceptance checks from 0–16 (0 missing/incorrect; 8 partially supported; 16 complete and evidenced). Score the final integrated project from 0–20 (0 missing; 10 incomplete handover; 20 complete, reproducible and consistent with the case). Target: at least 80/100 AND the critical check must pass. A total score never overrides a failed critical check.

SCOPE LIMIT
This covers a simplified service-business example. It does not establish compliance with a reporting standard or teach tax filing, audit or professional accounting practice.

SOURCES AND ACCESS
Assigned public videos can be watched free. Complete the original case in a text editor, on paper or in a spreadsheet you already have. No paid course, exam or provider certificate is included.

Accounting for Finance: Free Course
WikiFree: https://wikifree.com/courses/free-aswath-damodaran-accounting-for-finance/
Official source: https://www.youtube.com/playlist?list=PLUkh9m2BorqmKaLrNBjKtFDhpdFdi8f7C
Why selected: The public accounting series explains the three statements and inconsistencies. WikiFree provides the original service-business exercise and reconciliation.

Stage 1 selected lessons:

2. Session 1: The Financial Statements - An Overview (12:39)
https://www.youtube.com/watch?v=7rW7lpQZpqY&list=PLUkh9m2BorqmKaLrNBjKtFDhpdFdi8f7C&index=2

Stage 2 selected lessons:

3. Session 2: The Income Statement (16:28)
https://www.youtube.com/watch?v=Q8wKr1QDSwg&list=PLUkh9m2BorqmKaLrNBjKtFDhpdFdi8f7C&index=3

4. Session 2A: The Income Statement (Examples) (17:40)
https://www.youtube.com/watch?v=UYxJl2GvdGw&list=PLUkh9m2BorqmKaLrNBjKtFDhpdFdi8f7C&index=4

Stage 3 selected lessons:

5. Session 3: The Balance Sheet (14:05)
https://www.youtube.com/watch?v=cSuc2HHQpxc&list=PLUkh9m2BorqmKaLrNBjKtFDhpdFdi8f7C&index=5

6. Session 3A: The Balance Sheet (Examples) (17:25)
https://www.youtube.com/watch?v=Gr4JwDB1iRM&list=PLUkh9m2BorqmKaLrNBjKtFDhpdFdi8f7C&index=6

Stage 4 selected lessons:

7. Session 4: The Statement of Cash Flows (13:24)
https://www.youtube.com/watch?v=XobT12fvkXc&list=PLUkh9m2BorqmKaLrNBjKtFDhpdFdi8f7C&index=7

8. Session 4A: The Statement of Cash Flows (Examples) (15:36)
https://www.youtube.com/watch?v=U954oEU7_0w&list=PLUkh9m2BorqmKaLrNBjKtFDhpdFdi8f7C&index=8

Stage 5 selected lessons:

9. Session 5: Accounting Inconsistencies (16:26)
https://www.youtube.com/watch?v=un6-H_wOizM&list=PLUkh9m2BorqmKaLrNBjKtFDhpdFdi8f7C&index=9

REUSE
Original WikiFree teaching text and synthetic fixtures are supplied for personal learning and adaptation with attribution. Provider lessons remain on their original sites and retain their own terms. No provider certificate is included.