In This Chapter
Suppose your business earned $250,000 net income for the year just ended. How do you know this fact? Well, you read your P&L statement, of course. The P&L reports sales revenue and expenses for the year, leading down to $250,000 bottom-line profit (also called net income and earnings). Book III Chapter 2 explains the P&L statement in detail. But now, a different question: What's your cash flow for the year from the $250,000 profit you earned?
You probably had other sources of cash during the year. You increased the amount borrowed from the bank, and the owners (including you) invested additional capital in the business. The question here focuses only on profit, not your other sources of cash during the year.
Did your cash balance increase $250,000 because of your profit for the year? The answer is no: The amount of cash flow from profit is almost certainly higher or lower than the amount of profit. For the large majority of businesses, profit and cash flow from profit are virtually never the same amount.
Your accountant or controller (the chief accounting officer of your business) prepares ...