Reconnect to Lesson 01 and surface the timing problem that accruals solve
The Timing Problem Sarah Cannot Ignore
In Lesson 01 you saw Sarah drowning in manual work during her first real month-end close. But the deeper problem was not just speed—it was timing.
At the end of March, Sarah looked at her bank account and saw $4,200 in deposits. She looked at her invoice log and saw she had billed $5,800 worth of work. Neither number told her how much revenue she actually earned in March.
The Friction Point:
Cash moves on its own schedule. Work gets done on a different schedule. If Sarah only tracks cash, her income statement will lie about how the business actually performed each month. Investors and lenders need the truth.
Here are three real situations from Sarah's March. For each one, predict whether her March revenue should include that amount or not.
Situation A:
A client paid Sarah $1,200 on March 15 for a six-month social media package. She has only delivered about half of March's portion so far.
Should all $1,200 count as March revenue? Some of it? None of it?
Situation B:
Sarah finished a $500 website redesign on March 28. She will not send the invoice until April 5. The client will pay in mid-April.
Should the $500 count as March revenue even though no cash has arrived?
Situation C:
Sarah paid $600 on March 1 for a three-month insurance policy covering March, April, and May.
Should the full $600 count as a March expense? Some of it? None of it?
Discuss your predictions with a partner before moving to Phase 2. There is no single right answer yet—the point is to feel the tension.
Every month-end close has the same core challenge: cash timing does not match work timing. The adjusting entries you will learn in this lesson are the exact entries that Sarah's automation must produce every single month.
If you cannot identify which adjustments are needed and why, no amount of Excel automation will save you. You will just automate the wrong answer faster.