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SPEAKER_03: Welcome back to Planet Money Summer School, MBA edition. Today I should point out our business school's Latin motto. It's carved over the archway here on campus, sine mathematica, which means there will be no math, I promise. Even though today's episode is about accounting. No, no, no, don't turn us off. Give us a chance to make our pitch. Accounting is usually the first class that an MBA student takes. They come in with dreams of becoming billionaires. And then there they are, sitting in a lecture hall counting widgets, or figuring out whether their inventory should be last in, first out, or first in, first out. Life of Fife conundrum is a struggle. But inside any accounting class is a revolutionary way of thinking not just about a business, but about the world, a universe where all the forces are in balance, good and evil, yin and yang, assets and liabilities. It's a beautiful thing. A view that I know is shared by our professor for today's class, Emil Shahada is a professor of accounting at NYU Stern School of Business. Welcome. Thank you. Glad to be here.
SPEAKER_10: We should make it clear that accounting is so much more than taxes and numbers. Like accounting is something that not only every business uses, but every person uses.
SPEAKER_03: Every person uses it. And I hope that today we get to bust some stereotypes because accounting is your superpower.
SPEAKER_10: Explain. We're not teaching accounting so you can go become a bookkeeper and sit by yourself in the back room with your little calculator. And that little visor they have, like the green visor?
SPEAKER_03: Stop, stop. All right. And the little pocket protector for the pens.
SPEAKER_10: Yes. Okay. No. We are teaching accounting and the skill you get is you get a sixth sense. You have a way of interpreting, assessing, really judging. How is a company performing? How is my business performing? What information, meaningful data can I use to run my business and make really good decisions? All right. We will talk more with Emil after our first case study.
SPEAKER_03: In each episode of Summer School, we play a few classic episodes and have our professor suss out the big principles involved. Today, we have a doozy. It's a story about the birth of accounting and of the man who made that innovation possible. He was a monk, a magician, and possibly the boyfriend of Leonardo da Vinci. Accounting gets sexy. After the break.
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SPEAKER_08: It was a lot of work to condense more than a century of contract law into a single 20 minute episode.
SPEAKER_01: There was an article that you sent me that had like an old English font at the top of it. And I was immediately like, I'm not reading this one, Jeff. I'm sorry. You got to you got to be more selective. It's called research. How we did ours for our recent story on the rise of Internet contracts and how they got so sneaky.
SPEAKER_08: That is in our latest bonus episode for Planet Money Plus listeners. The support helps make this show possible.
SPEAKER_03: Our first case study on today's summer school is a historical tale about why accounting looks like it does today. It begins in the late 1400s in a wild and exciting and decadent place. Venice historian Jane Gleason White wrote a book about the scene.
SPEAKER_06: Venice in that day was, I think, the equivalent of Silicon Valley and New York all sort of wrapped up together. Everything was happening in Venice. Sounds amazing.
SPEAKER_03: Except Jane notes that Venice was also filled with malaria and the plague and certain odors because of the swamps.
SPEAKER_06: It was excessively stinky and they used to put incense and perfume around the canals to try and reduce the smell, which probably, I'm sure, only made it worse. Inside this swampy, fragrant city, a mathematical revolution was taking place.
SPEAKER_03: Roman numerals, you know, like L, X, I, X had been replaced by the Arabic numerals. We have now one, two, three, you know the drill. And that was allowing business people to do something that was almost impossible before to really keep track of how their business was doing. Essentially accounting. In the rest of the world, business people simply wrote down what they spent and what they bought in a sort of list, a diary really. It made it hard to see exactly what was going on. But in Venice, they started to do something new. It was called double entry bookkeeping. That meant separating out all the different parts of your business. On a big sheet of paper, you might write down all of your cash going in and out in one place on the paper, and have another section where you record your debts going up and down, another for inventory and so on and so on. Everything had a place. Well, technically two places to write it down. That's why they called it double entry bookkeeping. We'll show you the mechanics of double entry bookkeeping in just a few minutes. But first, the story of how it caught on. David Kestenbaum and Jacob Goldstein did a show in 2012 about the man who spread the gospel of accounting, Luca Piccoli.
SPEAKER_05: Earlier this year, I was doing a story just about taxes. It was tax time, and I was interviewing an accountant, and I said, who's like the Michael Jordan or the Muhammad Ali of accounting? You know, who is the greatest? And I'm thinking he's going to give me a partner at some big New York firm or something, and he says, Luca Piccoli. The guy who's been dead for like 500 years.
SPEAKER_04: So Piccoli, he was all kinds of things. He was a monk, a magician, but his real love was numbers and math. Really, he was a math guy. Piccoli, he grows up in a small town, and he makes his way to Venice, and that is where he sees those Arabic numbers, and he's totally taken with them. He's also particularly entranced with this fancy way that merchants are using them to keep their books. And in 1494, Luca Piccoli plays his big role in history. He writes it down. He writes down how to do this double entry thing, instructions and examples, and then he buries it inside this big, huge book he's writing. It's an encyclopedia of math. Jane, she's seen one of the original copies.
SPEAKER_05: Yeah, it's beautiful leather cover.
SPEAKER_06: It's so heavy. You have to sort of read it in a cradle. The pages are densely, densely written. There are no gaps between the letters, so each word is just run on to the next one. There are no gaps between the lines. It's almost impossible to read, but that was how it was at the time, you know, in the very, very early days of printing.
SPEAKER_04: It had math puzzles and games in it. It had information on how painters could use math to get really three-dimensional effects, you know, how to paint with perspective. And the book was a really huge hit.
SPEAKER_06: One of the first readers of Luca Piccoli's encyclopedia was Leonardo da Vinci at the time. He was painting what has become his most famous painting, which was The Last Supper. Does Leonardo use it for his painting?
SPEAKER_04: Yeah, yeah, yeah. Leonardo reads the book and thinks it's the coolest, latest thing.
SPEAKER_06: It is the coolest, latest thing in mathematics. It's like the ultra-cool mathematics text of its day. I can't imagine what that would be today. So Leonardo da Vinci reads it, realizes that it's really, really useful for the mathematics of perspective, that he needs to paint his masterpiece, which is The Last Supper. So Luca Piccoli arrives in Milan while Leonardo da Vinci is painting The Last Supper to help him with the mathematics of perspective painting. So can we imagine, is it plausible that Piccoli would have like gone over to where da Vinci was painting The Last Supper
SPEAKER_05: and been like, no, you need to do the math like this, you need to draw the lines like that? Oh, yeah. Yeah, totally.
SPEAKER_06: They were hanging out together. They hung out, you know, they lived together after they left Milan. It's very possible they were lovers. They certainly spent a lot of time together and definitely Luca Piccoli was there in the actual church when Leonardo da Vinci was painting The Last Supper and he was very moved by it. Okay, so this book, maybe it helped bring us The Last Supper, but also of great historical significance,
SPEAKER_04: what Piccoli is known for today, a different little part of the book, volume one, chapter nine, part 11, the section about bookkeeping. In the Italian, it is called Particularis de Computis a Scripturis.
SPEAKER_06: And one of the first things he writes is like, you have to, merchants, you have to do an inventory, you have to know what you own.
SPEAKER_04: And he gives this example of a typical Venetian merchant who has gold and coin, cases of ginger, sacks of pepper, packages of cinnamon and cloves, sandalwood, fox and chamois skins, bank deposits. So he walks them through really the whole double entry thing. Yeah, yeah. He shows them exactly how to do it from the beginning.
SPEAKER_06: So he, as you say, he walks them through the whole thing. He imagines that they have never had an account before. And so the very first thing you do when you're opening your books is take an infantry and that becomes your capital. So that is all your wealth. And as anyone knows, inventories are still an essential part of running a company. So Luca Piccoli publishes this book and it's sort of an instant hit.
SPEAKER_04: It goes abroad and people start to, people read that chapter and they start to use double entry bookkeeping. Is that what happens? Yeah. So what happens is not only does it go abroad and they read that chapter, but that chapter was extracted and turned into a volume of its own.
SPEAKER_06: So not long after Piccoli published his book, the Venetian empire crumbled and the new center of trade went to Germany and then to Holland. So as the centers of trade spread, so this new technique was adopted by the merchants in the local regions. So you can see that this one tiny mechanism that was invented in Italy and codified by Luca Piccoli in 1494 spread gradually across the world. And by 1900, it was the basis of business across the planet, which is pretty extraordinary.
SPEAKER_04: What do you think Luca Piccoli would think of the world today and double entry bookkeeping everywhere, not just in every business. You know, whenever anyone buys a business, they say, show me your books. You know, if you have if you if you if your stock is sold publicly, you have to, you know, basically show your books, you know, a bunch of times a year. But also for countries, you know, countries keep track of their entire economies basically through double entry bookkeeping. Yeah. What would he think?
SPEAKER_06: I think he'd be absolutely astonished, wouldn't he? He'd fall backwards, I think.
SPEAKER_03: That story from David Kestenbaum and Jacob Goldstein. Jane Gleason White's book is called Double Entry. How the merchants of Venice created modern finance. Let's bring back in our accounting professor, M.L. Shahada. I just love that story of the father of accounting, the serendipity of that whole experience, right?
SPEAKER_10: He happened to be in Venice. He happened to be writing this book. He happened to have access to the printing press. And even in the fifteen hundreds, it went viral. I love it. OK, with your help, we are going to learn the nitty gritty of the double entry bookkeeping process.
SPEAKER_03: Luca Piccoli's baby. And it does involve everyone talking about an equation. I know. I promise no math. Luckily, this equation has no numbers. It's only words. I'll take it away. The backdrop to our accounting system is what we call the accounting equation.
SPEAKER_10: Here it goes. Drum roll. I'm so excited. Assets equals liabilities plus equity.
SPEAKER_03: Assets equals liability plus equity. Let's let's break this down. I think we understand assets because we all have assets. Assets are things the business owns. Yeah, it's economic resources that provide future benefits. Great.
SPEAKER_10: Some examples. Think about it. Cash. That's a great asset, right? You can do a lot of things with that. A factory. A factory, right? If I have a factory, I can manufacture my goods, sell it to my customers, make lots of money.
SPEAKER_10: Land, equipment, computers. All of those are economic resources.
SPEAKER_03: Great. That's the asset side. It equals liability plus equity. Liabilities. Go. Economic obligations. Things you owe.
SPEAKER_10: Like you may owe a loan to the bank or or maybe even what you owe to your employees.
SPEAKER_03: Exactly. That's exactly right. Any obligation you have to an outsider that ultimately you will settle, usually by using your assets.
SPEAKER_10: This brings us to the third element, the last element of the equation. Equity.
SPEAKER_10: Equity are the owner's claim to the business. And to put it simply, if you were to shut down your business, take all your assets, use them to pay off all your liabilities, whatever is left goes to the owners.
SPEAKER_03: And, you know, interesting if I never thought about it until now, but you say it balances. Is this why they call it a balance sheet? Because it's balanced. Yes, that's right. I guess so. That's a great that's a great point.
SPEAKER_10: OK, so let's illustrate this balance, this double entry that we're talking about. Let's say I have a hot dog cart because we live in New York City.
SPEAKER_03: You know, hey, everybody, hot dogs. So I get a loan for a thousand dollars for my hot dog cart. And it goes into two different places in my books, two different accounts. It's a liability, which we just went over. It's something I owe to the bank. So I write that down. A thousand dollars liability. But it's also an asset because now I have a thousand dollars in cash to spend. And I write that down. A thousand dollars in cash in a separate place. Now, let's just say I want to buy a hundred dollars worth of mustard. Now my cash goes down. A hundred dollars. That's sad. But my mustard inventory goes up. Yay! Always double entry. Everything goes in twice. Now, Emil, this seems like fun, but why not just eyeball everything at the end of the day? And say, eh, I got enough cash and mustard to last me another day and not worry about it. Sure. You know, before Luca and before documenting this double entry accounting, it was kind of that, like a single entry accounting.
SPEAKER_10: You just sort of kept a track overall of where you ended up. I mean, think about if you have a bank account and you just watch the increase and decrease in your cash balance, for example, or your investments. But that doesn't tell you all of the other information. If you borrow money, your cash increases, but you also now have a corresponding economic obligation, what we call a liability that increases as well. So that cash is not unencumbered, right? You have a responsibility in the future to use some of your assets to pay off that loan. If we don't keep track of that more granular impact on the other side of the equation, and when I say other side, I mean the liabilities and equity, then we just say, hey, we got all this cash. It looks great. Sure. Well, wait a minute. You also have some other stuff going on here.
SPEAKER_03: And the way we use this, not just for our own business, but we use this to evaluate other businesses. So there could be two companies that have equal amounts of cash and are in no way equal. And once you look at a balance sheet, you can see all the different things going on sort of in one picture. Oh, that's the beauty of it is that contrast and comparison.
SPEAKER_03: After the break, we'll be back with our second case study. Imagine what happens when Luca Petroli's accounting starts to move at the speed of light. Well, you probably don't have to imagine it. You've probably used it. It's called an electronic spreadsheet. And the magician in Luca would have loved it.
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SPEAKER_03: Welcome back, everyone, to Planet Money Summer School, MBA edition. Our second case study is about another great revolution in accounting, the thing no MBA student can live without, an electronic spreadsheet. Think Microsoft Excel or Google Sheets. Luca Piccioli's bookkeeping system took pages and pages and pages of paper. But on a screen, you can get as large and as complicated as you want. And it changes the very nature of what accountants are asked to do. Jacob Goldstein and David Kestenbaum are back with our next case study from a 2015 episode about how the electronic spreadsheet took over the world.
SPEAKER_05: There was a time when a spreadsheet was an actual sheet.
SPEAKER_04: Eleven inches by 17 inches. Yeah, a sheet of paper. I talked to a guy named Alan Snyder.
SPEAKER_05: He was an accountant in the 70s and he said he used spreadsheets all the time. Sometimes one sheet was not enough. So we would have to tape these sheets together.
SPEAKER_12: So did you have like a really big desk? Like how do you even manage something?
SPEAKER_05: It took, yeah, I mean it took the greater part of a full-size desk.
SPEAKER_12: What a spreadsheet does is it gives you a detailed way to look at a business, really any business.
SPEAKER_04: So if you're in the chocolate business, you would put into a spreadsheet the cost of cocoa, the cost of sugar, your taxes, your rent, salaries, all that stuff. Also sales, right? How much money you're going to get for the stuff you sell. Oh yeah, you're not going to bring in some money not to spend it. And then you would do a whole lot of arithmetic and math. And at the end of that, you would have a pretty detailed picture of your business and how it was doing. And if you're running the chocolate factory, you get your accountant to do this for you.
SPEAKER_05: You go to a guy like Alan Snyder and say, put together this spreadsheet for me. And that could take Alan and his whole team days, right? That once he built this thing, it would have hundreds of different numbers running around in it. And then it never failed. After Alan had put this whole thing together, the guy who ran the factory would come to Alan and say, what if I spent just a little more on cocoa? What would that mean for my business? That little question would mean a lot of work for Alan.
SPEAKER_12: You'd take out that large eraser and start erasing each of these. You'd take out a calculator. Then you'd have to re-add and then cross-add each column. And then you'd have different tax results. You'd have a different cash result. Every column had to be changed. Alan said it could take a day, like a really boring day to run all the numbers.
SPEAKER_04: And that was just when the client had asked for one tiny little tweak. So, okay, it's the late 70s and not far from where Alan is working, there's a guy named Dan Bricklin, sitting in class bored out of his mind.
SPEAKER_05: He's the guy who's about to invent the spreadsheet.
SPEAKER_05: Yeah, the future inventor of the spreadsheet is at this moment in our story, sitting in class. He's at Harvard Business School in this big lecture hall. And up at the front of the room, there's a professor up on the blackboard doing some spreadsheet type math. And Bricklin has this daydream. I thought that, you know, it's kind of silly that we're writing on this blackboard where I can't, if only we had a blackboard,
SPEAKER_11: what I could erase a number and write a new number in and everything would recalculate. This was a timely moment to have this daydream.
SPEAKER_05: The Apple II computer had come out. It's a computer finally that you could have at home. You could put it on your desk. But of course, at the time, most people thought of it basically as a toy. They thought of it like a video game console. Bricklin looks at the Apple II and thinks, you know, this could be my magic blackboard.
SPEAKER_04: He thought it could do what accountants were doing on paper with their giant spreadsheets and their erasers. You could run this thing and it would actually calculate.
SPEAKER_11: You go bump, bump. You would put a number in and hit return and everything would recalculate. And you could watch it. You could watch the numbers change. Bump, bump, bump. It made sound. I had a real prototype. I love it. I love it. It made sound.
SPEAKER_05: The audio spreadsheet. Actually, that was another problem in the early months. He said it took up a crazy amount of memory to make the sound. So he killed the sound too. All right. So what happens next? So next, he hooks up with his old friend, this guy named Bob Frankston, also a computer guy. A guy today known as the co-creator of the spreadsheet.
SPEAKER_04: That's it, right? His early partner.
SPEAKER_05: And Frankston and Bricklin, they start giving demos around town, basically showing this prototype to guys like Alan Snyder, to accountants with big erasers. I was flabbergasted. I said, this is amazing. This was amazing. And it was.
SPEAKER_12: Alan managed to get his hands on one of those early test versions.
SPEAKER_05: And then not long after that, when the spreadsheet software actually hit the market, sold under the name VisiCalc, Alan became the first registered owner. Alan Snyder, spreadsheet user number one. For anybody working with spreadsheets, mainly accountants, I mean, this was like a godsend.
SPEAKER_12: I mean, you wouldn't have to do this grudgery work over and over and over again.
SPEAKER_04: It was a godsend, but it was also a threat because the computer could do in seconds what it used to take someone an entire day to do. In fact, the computer was better at it. The computer didn't make mistakes. There's this amazing little anecdote about an accountant right after the electronic spreadsheet came out.
SPEAKER_05: And what happened was this accountant, he got a rush job from one of his clients. It was the kind of thing that in the old paper universe would have taken a couple of days. This guy has this new electronic spreadsheet. So he plugs in the numbers, does the work in just a couple hours. Then what he does, he just waits, lets the thing sit on his desk for like two days, FedExes it back to the client, and the client was like, wow, you did it so fast.
SPEAKER_04: It's a funny story, but clearly like that was not going to be a long-term strategy, right? If it only takes a couple hours to do a spreadsheet and you're billing by the hour, you're going to make less money for a particular job, right? You're going to need fewer workers. You're going to need to get rid of some people.
SPEAKER_05: And in fact, if you look at the numbers, just the national jobs data from the government, you can see this. Since 1980, right around the time the electronic spreadsheet came out, 400,000 bookkeeping and accounting clerk jobs have gone away. But 600,000 accounting jobs have been added.
SPEAKER_04: What happened is that accounting basically became cheaper. And sometimes when something gets cheaper, people buy a lot more of that thing. Allen said clients bought more accounting. They called up asking him to run more numbers for them.
SPEAKER_12: You could play the what if game, you know, what if I did this instead of that. If you're that person who owned the chocolate factory, you can now call up Allen Snyder and ask all kinds of questions.
SPEAKER_04: What if we made our chocolate bars a little bit smaller? What if we made them 2% larger? Can we give everyone a raise this year? What if we started selling a lot of chocolate bars to China? All these questions, normally it would have been very expensive for Allen Snyder to do it out on paper, but now it was much cheaper. So people asked a lot more questions. VisiCalc, this software Dan Bricklin wrote, it becomes the killer app for the Apple II.
SPEAKER_05: It's the $99 piece of software that makes people go out and buy the $2,000 computer. And this actually went way beyond accountants. It let doctors do better calculations for anesthesiology before their open heart surgery.
SPEAKER_11: It was used by a company to decide where to put which slot machines on the casino floor. On top of that, there is one industry that Bricklin didn't mention there where spreadsheets were a monumental deal,
SPEAKER_05: where spreadsheets became the center of the world. And that industry is finance. Spreadsheets basically gave birth to modern Wall Street, to this world we have today.
SPEAKER_04: Wall Street became obsessed with this what-if question. What if we got a slightly better interest rate on our loan? What if these two companies merged? What if we structured the deal this way?
SPEAKER_05: Today, the spreadsheet is the way people in finance talk to each other. It's the way they decide, is this a billion dollar deal? Is this a $950 million dollar deal? Should we do this deal at all? Wall Street is basically a bunch of Excel spreadsheets flying back and forth. You may remember the London Whale story from a couple of years ago about a trader at JP Morgan who lost the bank $6 billion.
SPEAKER_04: That was partly a spreadsheet error.
SPEAKER_05: I talked about the London Whale with Matt Levine recently. Matt used to work at Goldman Sachs, now he writes for Bloomberg. And Levine says somebody working with the London Whale built a spreadsheet to estimate how risky the group's trades were. But there was a problem. There was one cell where he had to divide by the average of two numbers and he divided by the sum of those two numbers.
SPEAKER_02: And he forgot to put in the two at the end. And so that showed half as much risk as they actually had. And so then everyone was deceived about how much risk they had. This is the thing about spreadsheets. They look really good no matter what goes into them.
SPEAKER_04: Someone brings a spreadsheet into a meeting, it looks so precise. It's got numbers and graphs and pretty fonts. It feels like it's telling you exactly how the world is. It feels like truth. Though of course it's just a model. It's just a guess. It's particularly a problem with the spreadsheets because they're very easy to use.
SPEAKER_02: So it's really easy for like a 22-year-old right out of college to use Excel and to build something that really looks like a cool model.
SPEAKER_05: But Levine says, you know, most people are smart enough to understand the difference between the model and reality. He says most of the time people get the math, right? So on balance, spreadsheets, Levine says, actually a good tool. They give us more information. They help people make better decisions. It's a win. It's a plus. Net plus. Spreadsheets have left us in a different world though.
SPEAKER_04: It's a world where we are constantly asking what if. And by we I mean not just accountants and people on Wall Street. Like all of us. Me. More than I would like. I have a spreadsheet where I track my electricity meter. So I can see what difference it makes if I take a shorter shower. I'm not saying, oh, because like, oh, you use a spreadsheet and you're a nerd.
SPEAKER_05: I'm saying, oh, because like it's so cheap it's painful. Knowledge is not always good.
SPEAKER_03: That story from Jacob Goldstein and David Kestenbaum in 2015. After the break, with great power comes great responsibility. What happens when villains get a hold of the accounting superpower? Bwahahahahaha!
SPEAKER_09: Okay everyone, class is back in session.
SPEAKER_03: Accounting, bookkeeping, the electronic spreadsheet. They all seem to make the world very precise. It's all numbers after all. Everything adds up. Everything balances as we learned. But this seeming precision can lead to overconfidence. And even presents an opportunity for fraud. Let's bring back in our professor, Amal Shahada, who is, what do you have, like five Excel spreadsheets open on your computer at this point? I think it's seven. It's addicting. It is addicting. The power of this thing to ask all these questions about your business, these what if questions. It sort of highlights that what you're really doing in accounting is making judgment calls. Like you're using your discretion constantly to make assumptions about what might happen. That's right. And that's the power of it, right?
SPEAKER_10: You can model taking the different variables and consider what ifs, right? What if I don't have the level of sales or customers that I anticipate? What if my rent expense increases? What if customers return more goods than I anticipated? That's pretty powerful, right? To be able to evaluate changing variables and consider the impact on your business. So there's different judgment calls that can make your business look better or worse.
SPEAKER_03: How does it cross over sometimes into fraud? Like what is the number one thing that fraudulent companies do to make their books look better? Well, it's not just one thing, right?
SPEAKER_10: Fraudsters will try to find areas of opportunity or areas of discretion, areas that are more subjective so that they can report more positive results. So areas of fraud could be underreporting expenses, for example. Saying, oh, I didn't have as much expenses as I really did because then that bottom line, what we call net income or earnings, looks better. Or fictitious customers. I'm selling to all of these customers, I'm making all of this money, when in reality that may not be the case. So either trying to pump up the number that shows how much money you're bringing in or reduce the expenses so you look more profitable. And if you do enough of that at a large scale, I mean, it can destroy the company like Enron.
SPEAKER_03: Or in the case of Enron, it actually destroyed the accounting company that was their accountant. That's right. Right.
SPEAKER_10: Enron is the case study of serious fraudulent behavior. Accounting revenues, what makes you look like you're making a lot of money, when really that didn't exist. It was fictitious and wishful thinking. And it was a house of cards that all came crashing down. We do try to avoid that in accounting.
SPEAKER_03: Please, please, please.
SPEAKER_10: That's not the takeaway here. The takeaway here is to use the superpower of accounting.
SPEAKER_03: For good. For good. And not evil.
SPEAKER_10: And for running your business. Let's go back to that anchor of let the accounting help you run your business.
SPEAKER_03: Emil Shahada, thank you so much for joining us and for teaching the class today.
SPEAKER_10: My pleasure.
SPEAKER_03: And Emil has left us with a few vocabulary words wrapped inside that fundamental equation that balances all existence. Too much? Maybe that's too much. All right. That equation is assets equal liabilities plus equity. Assets, the first part, are everything of value to the business that helps it run. The cash, the investments, the factory, all that mustard. Just the change in the couch cushions. All assets. Liabilities are everything you owe to your bankers, to your employees, to your customers. If you've promised it, you've got to write it down. And our third vocabulary word, equity. Once you subtract your liabilities from your assets, is anything left over? I hope so, because that's equity. That's what you and your investors get to claim if you, say, sell the business and go off to Bermuda. Just don't be seduced by a spreadsheet that seems to be a little bit too much. Just don't be seduced by a spreadsheet that seems too good to be true. Okay, students, now that we've had three sessions of summer school, are you feeling ready to try something new? Does the double entry spreadsheet in your brain say knowledge up and ignorance down? Excellent. We'd like to hear from you about the business ideas that are just popping into your mind as you're listening. And if we think your idea is intriguing, well, we might invite you on to our graduation episode at the end of August. Your idea can be big or it can be tiny. It can be hats for cats. But we want to see what you've learned. Who are your customers? What is the problem you're solving? How do you differentiate from your competitors? Why won't the cats just take off the hats? That seems like what they would do. Send us your pitch to planetmoney at npr.org with summer school pitch in the subject line. That's planetmoney at npr.org. Our summer school series is produced by Max Friedman. Our project manager is Julia Carney. This episode was edited by Sally Helm and engineered by Robert Rodriguez. The show is fact checked by Sierra Juarez. Planet Money's executive producer is Alex Goldmark. I'm Robert Smith. This is NPR. Thanks for listening.
SPEAKER_07: Thank you.
