Profit is not cash: why the two differ
A business can make a profit and still run short of money. See where profit and the bank balance part company.
Task 1A profitable month that drained the bank3 questions
Profit counts a sale when it is invoiced and a cost when it is used. Cash counts money only when it moves through the bank.
| Item | £ |
|---|---|
| Bank balance on 1 March | 12,000.00 |
| Sales invoiced in March | 15,000.00 |
| Received from customers in March | 6,000.00 |
| Wages, materials and rent for March, all paid in March | 11,000.00 |
| New table saw, paid for in March | 5,000.00 |
The saw will last for years. Its cost is not an expense of March: it is an asset. Leave depreciation out for now.
Task 2Where the difference comes from2 questions
Task 3Cash without profit, profit without cash3 questions