What is accounting, and why should you care?
Imagine this: Alex, a 10-year-old entrepreneur, wants to start a lemonade stand in his neighborhood. He’s excited to sell cups of lemonade and make money. But after a few days, Alex realizes something…
💭 “I sold a lot of lemonade, but I don’t know if I actually made money! Did I spend too much on lemons? How much did I earn? Do I have enough to buy more supplies?”
This is where accounting comes in! Accounting is the language of business, helping people like Alex track money coming in (income) and money going out (expenses) so they can make smart financial decisions.
What Accounting Tracks (Key Concepts)
Here’s how Alex organizes his lemonade stand finances:
1. Income (Revenue) – Money Coming In 💰
Whenever a customer buys a cup of lemonade, Alex earns money.
- Example: He sells 20 cups at $1 each, making $20 in revenue.
2. Expenses – Money Going Out 🏦
Alex needs to spend money to make lemonade. His costs include:
- Lemons = $5
- Sugar = $3
- Cups = $2
- Signboard = $5
Total expenses = $15
3. Profit – What’s Left After Expenses ✅
Alex calculates his profit:
Revenue ($20) – Expenses ($15) = $5 Profit 🎉
Profit tells Alex whether he made more money than he spent.
The 4 Main Accounting Categories
Everything in business falls into one of these:
| Category | What It Means | Example from Alex’s Lemonade Stand |
|---|---|---|
| Income (Revenue) | Money earned | Selling lemonade for $1 per cup |
| Expenses | Money spent on business | Buying lemons, sugar, cups |
| Assets | What Alex owns | Cash, extra lemons, signboard |
| Liabilities | What Alex owes | If he borrowed $10 from his parents |
If Alex borrows money from his parents to buy supplies, that’s a liability (debt).
Why Accounting Matters (Even for a Lemonade Stand!)
- It helps track profits – Alex now knows if he’s making money.
- It shows where money goes – He realizes lemons cost more than sugar.
- It helps plan for the future – Should he sell at a higher price or buy cheaper cups?
Without accounting, Alex could run out of money and not even know why!
Homework: Try This Yourself!
Pick a real-life transaction from your daily life and classify it into one of these categories:
- Income
- Expense
- Asset
- Liability
Example: If you bought lunch for $10, that’s an expense.
💬 Comment below: What’s one expense or income you tracked today? Let’s practice together!
