Profit ≠ Cash(and You Need Both)
by Karen Berman and Joe Knight, with John Case
Profit, shown on the income statement, is not the same as net cash, shown on the cash flow statement. Why should this be? Some reasons are pretty obvious: Cash may be coming in from loans or from investors, and that isn’t going to show up on the income statement at all. But even operating cash flow is not at all the same as net profit.
There are three essential reasons:
- Revenue is booked at sale. 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 on subtracting its costs and expenses ...
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