Those concepts of understanding those things of what's on the balance sheet, pretty simple to accumulate. Pretty simple to understand, pretty simple to measure. But the balances involved are things that accumulate over time. And how did we accumulate those over time? What adds up to become the balance sheet? Well, those are the transactions we engage in each day.

And the transactions really are more about the income statement. If you were to log on to your credit card account after you look at the balance, if the balance seems like it's zero, you haven't had any purchase on that credit card since the last statement, then, if that's what you expect, then you won't look any further. If you log on though, and you thought you had no transactions on that credit card and all of a sudden you find you have a million dollar balance. You're gonna immediately ask, How did that happen? happen, balances tell us what the position is. But they don't tell us why that position is there.

And so the thing that tells us the Why is more of the transaction. So as you log into your account, you look at the balance if it doesn't seem quite right, the first thing you go to is you go to see what are the transactions, balances, although they tell us all, all financial reporting begins by understanding the balance. The transactions are what accumulate to make balances. If you start from scratch, if you start a new business, the balance of the business is zero. And if you take all of the transactions and add them up over the first month of time, you'll end up with balance at the end of the first month of being in business. balances are accumulation of transactions.

And but the transactions themselves are reflected on what's called the income statement. What's the nature of the income statement? Well, the income statement typically has two major parts. Maybe You could call it three. The first part is revenue. What is revenue revenue is what you've earned.

It's what somebody paid you. It's the amount that you take in from doing whatever it is you do. On your checking account, it would basically be like deposits, deposits or good things on your credit statement, it would be payments, payments, reduce your liabilities. Those are good things. The next section is expenses. Expenses are things that you buy that you pay for, but they're the charges on your credit card.

They're the checks in your checking account statement. They're the things that flow out, they have more affinity to the liability side. And whereas the revenue side is perhaps more has more affinity to the asset side of the balance sheet. Then there's the difference between the two of them. Just like on the balance sheet, we have assets, liabilities and equity. on the income statement, we have revenue We have expenses and the difference between those two is net income.

It's the profit or loss or profit over a period. Sometimes the income statement is called the profit and loss statement. That difference equates to what goes into the equity of the business. So those are the two major structures of financial reporting balances on the balance sheet, and transactions or business events on the income statement.