Profit describes revenue less expenses under the reporting basis; cash flow describes money moving in and out. A profitable business can have unpaid customer invoices, and a loss-making business can receive financing. Read the profit and loss report alongside relevant balances and cash information rather than substituting one for the other.
Get help with your monthly booksPractical records guidance · Updated October 17, 2026 · Fictional examples
Under accrual reporting, an earned invoice can contribute to profit before the customer pays. An unpaid supplier bill can affect expenses before cash leaves. Prepayments, inventory and asset purchases can add further differences beyond these simplified examples.
Loans and owner funding can increase cash without creating customer revenue. Loan principal repayments and owner withdrawals also differ from ordinary operating expenses. Understanding those movements helps prevent the bank balance from being misread as monthly earnings.
Illustrative example · Fictional data
Illustrative example: $3,000 of services are earned and $1,000 of expenses incurred, with no other activity. Accrual profit is $2,000. If the customer has not paid and a separate $5,000 loan arrives, cash movement reflects financing and payment timing, not $5,000 of profit.
Yes. Receivables, payment timing, inventory or other uses of cash can leave cash limited despite reported profit.
A historical report is not automatically a cash forecast. Forecasting assumptions and deliverables need separate scope.
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