A business is a pile of money. Money gets added to it and money gets taken away. If more money is added than taken away, the business grows. If more money is taken away than added, the business shrinks. This is the most important thing to understand about a business, even if it sounds too simple to be true.
People who create and operate businesses must figure out how to pile up money over time. There are only two ways to get money: creating it or getting it from someone else. Since creating it is illegal for any business, with the exception of commercial banks, businesses must figure out ways of getting it from those who have money. To do so, businesses must offer them something they want in exchange. The actions of every single business can be thought of and understood in this way.
The same logic can be used for every single transaction in a business’s financials. It’s just money being added or taken away from a pile of money, with the aim of keeping the pile alive and ideally making it grow.
