Profit ≠ Cash (and You Need Both)
Why is profit not the same as cash coming in? Some reasons are pretty obvious: cash may be coming in from loans or from investors, and that cash isn’t going to show up on the income statement at all. But even operating cash flow, which we’ll explain in detail later, in chapter 15, is not at all the same as net profit.
There are three essential reasons:
- Revenue is booked at sale. One reason is the fundamental fact that we explained in our discussion of the income statement. A sale is recorded whenever a company delivers a product or service. Ace Printing Company delivers $1,000 worth of brochures to a customer; Ace Printing Company records revenue of $1,000, and theoretically it could record a profit based ...