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1: profit is the surplus after total costs have been deducted from total revenue, whereas cash is money at bank or in hand, readily available for use.
2: profits are calculated in the trading,profit and loss account whereas cash is shown in the cash flow forecast or cash flow statement.
3: Cash is only recorded when money changes hands, that is, it will only be recorded in the statement once the business has 'actually' received money, rather than what it is 'promised' to recieve. For instance, if a business makes sales which are 20% on cash and 80% on credit, then the cash flow statement will only record the money received for the "20%" of sales and it will record the rest of the "80%" when it has 'actually' received this money. On the other hand, because of our "accruals concept" in the same example above, when we will calculate profit, we will include the cash as well as credit sales, which means all of the sales made. Now this shows that though the business will show "profitable in books" it will actually be short on cash.
Some other cases where profitable business can run out of cash are :
a: purchase of an fixed asset (through cash)
b: over-trading
Therefore, cash is important in the short run as it is needed to pay creditors and workers. Without sufficient cash, creditors (in extreme cases) can take you to the court and declare you bankrupt or insolvent in case of companies.
Workers who will not be paid on time will be demotivated, resulting in poor productivity, high absenteeism and labour turnover.
Profits are essential for the long term survival of the business, otherwise no institution would be interested to invest in a business which yields them low return on their capital investment.
Hope that helps!
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What is the difference between cash accounting profit and loss and accrual accounting profit and loss?
Cash accounting and accrual accounting are two methods of accounting in cash accounting system all expenses and revenues are recorded when actual cash is paid or received while in accrual profit and loss statement, revenues and expenses are recorded when they are actually occurred and timing of receipt and payment of cash is not important.
What is the difference between profit and loss account and cash flow statement?
Cashflow : Only the actual cash spent / received will be entered. Credit will not be entered. Profit & loss : It is more of accrual basis, all transactions that are happening in that accounting period will be entered. Cashflow : Only the actual cash spent / received will be entered. Credit will not be entered. Profit & loss : It is more of accrual basis, all transactions that are happening in that accounting period will be entered.
What is the difference between a cost center and profit center?
cost centre = the department which activities cash disbursement profit centre = the department which activities making cash
Why Diffrance between cash flow and accounting profit?
Cash flow by definition looks at the flow of cash either inwards or outwards. However, financial statement accounting considers cash flows as well as non-cash items like depreciation, amortization of goodwill, capital write offs, bad debts, provisions, discounts & rebates, etc. The non-cash transactions affect the accounting profit while does not have any impact on the cash flow statements.Hope this helps!
What is the difference between profit and cash flows?
Profit mean that when a company sales turnover more so extra income that we get is profit. Cash flow means inflow & outflow of cash when there is any expenses or income earned.
What is the difference between cash accounting profit and loss and accrual accounting profit and loss?
Cash accounting and accrual accounting are two methods of accounting in cash accounting system all expenses and revenues are recorded when actual cash is paid or received while in accrual profit and loss statement, revenues and expenses are recorded when they are actually occurred and timing of receipt and payment of cash is not important.
What profit is the difference between the incoming cash and outgoing cash?
cash balancing
Does sales made on credit cause accounting profit and cash flow to differ?
Yes, because due to sales on credit sales are accounted for when they are occurred while cash is received in some future time that;s why accounting profit and cash flows differ due to recognition timing difference.
What is the difference between profit and loss account and cash flow statement?
Cashflow : Only the actual cash spent / received will be entered. Credit will not be entered. Profit & loss : It is more of accrual basis, all transactions that are happening in that accounting period will be entered. Cashflow : Only the actual cash spent / received will be entered. Credit will not be entered. Profit & loss : It is more of accrual basis, all transactions that are happening in that accounting period will be entered.
What is the difference between a cost center and profit center?
cost centre = the department which activities cash disbursement profit centre = the department which activities making cash
What is the difference between profit and cash?
Cash is liquid asset - it is the money we received not what we are promised for . Cash can also flow out of business while profit is earned by business and is represented on paper ( in the accounts ) .
Why Diffrance between cash flow and accounting profit?
Cash flow by definition looks at the flow of cash either inwards or outwards. However, financial statement accounting considers cash flows as well as non-cash items like depreciation, amortization of goodwill, capital write offs, bad debts, provisions, discounts & rebates, etc. The non-cash transactions affect the accounting profit while does not have any impact on the cash flow statements.Hope this helps!
What is the difference between profit and cash flows?
Profit mean that when a company sales turnover more so extra income that we get is profit. Cash flow means inflow & outflow of cash when there is any expenses or income earned.
What is the difference between cash flow and cash?
Profit mean that when a company sales turnover more so extra income that we get is profit. Cash flow means inflow & outflow of cash when there is any expenses or income earned.
How can you justify a cash movement in Accounting?
Cash flow statements can be used by businesses to track all cash that flows in and out of their operations. They can help small business owners understand the difference between the cash flow and net income and justify cash movements in accounting.
Why profit is not equal to cash in accounting?
You could sell merchandise and make a profit. If the customer has not paid you yet, you have not increased cash. You have increased accounts receivable.
What managerial assessments may you make about an organization that has a profit and negative cash flow in the same accounting period?
What managerial assessments may you make about an organization that has a profit and negative cash flow in the same accounting period?
