There are 7 models that use the analogy of water pipes and tanks to explain how accounting transactions and balances work, such as the one pictured here. The models build sequentially, starting from a simple one that only features revenue, receivables and cash receipts, and then adding additional accounting transactions and balances to become more complex.

The models can help you develop an intuitive understanding how profit and loss items, balances and cashflow are all linked. Some models include financial statements that update automatically as you run the model, so that you can understand the hidden links between the various financial statements.

The models cover the following topics. The links to each model are below. If you are interested in taking a short online course that features these models, click here.

  • Revenue and Cash
  • Receivables and Payables
  • Assets, Liabilities and Equity
  • Financial Statements
  • Debiting and Crediting
  • Direct vs Indirect Costs
  • Cashflow vs Profit
  • Working Capital
  • The Operating Cycle
  • Profit Margins
  • Fixed Assets
  • Business Funding

“This is an excellent way to understand how business really works.”

Richard Barker, Professor of Accounting, Saïd Business School, University of Oxford

To launch each model, click on the relevant link link below. This will bring up some introductory text, a video demonstration and a link to each model which will launch in a new tab.

The first model introduces the analogy of water pipes and tanks to show how revenue, receivables and cashflow are all linked. Watch the video to understand how to use it, and then launch it by clicking the link below.

Launch The Model

This model adds costs, payables and payments to the previous model. It introduces the ideas of debit balances - the blue balances - and credit balances - the red ones. It also explores how receivables days and payables days affect cashflow. Watch the video to see a demonstration, and then launch the model by clicking the link below.

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This model introduces the profit and loss account as an equity balance. This model allows students to develop an intuitive understanding of crucial accounting concepts, such as:

  • Every accounting transaction debiting one balance and crediting another
  • Assets being matched by Equity and Liabilities
  • Profit generated by a business being attributable to shareholders

This model and further models feature financial statements as well as the diagrams of pipes and tanks to help demonstrate the connections between profit, balances and cashflow. Watch the video to see a demonstration, and then launch the model by clicking the link below.

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This model introduces the working capital cycle using the example of a simple retail business. It introduces the inventory balance and provides a visualisation of the operating cycle. Students must manage both profitability and cashflow in order to be able to generate profit and then distribute this profit to shareholders in the form of dividends. Watch the video to see a demonstration, and then launch the model by clicking the link below.

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This model simplifies the previous model into 3 balances: the profit the business has generated, its non-cash assets and liabilities, and cash. Using the model students can develop an intuitive understanding of the idea that profit is equal to a company's cashflow plus the net change in the value of all its non-cash assets and liabilities. Watch the video to see this in action, and then launch the model by clicking the link below. To use the model, you may find it helpful to enable full-screen mode in your browser, which you can do on a computer by pressing the F11 key.

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This model introduces the concept of fixed assets and how they are accounted through straight-line depreciation. Drag the slider to purchase fixed assets and adjust the write-off period to see how it affects the depreciation charge. Watch the video to see this in action, and then launch the model by clicking the link below. To use the model, you may find it helpful to enable full-screen mode in your browser, which you can do on a computer by pressing the F11 key.

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This model introduces funding through share and loan capital so now simulates running a full retail business. The model can be used to visualise the concepts of gearing and funding through organic profit, payables, shares, loans and overdrafts. Corporation tax has now also been added. To use the model, you may find it helpful to enable full-screen mode in your browser, which you can do on a computer by pressing the F11 key.

Launch The Model