Your financial report shows a profit, but your bank balance feels tight. How can both be true?
Profit and cash flow measure different things. Profit generally reflects revenue minus expenses for a period, while cash flow tracks money moving into and out of your business. The timing also depends on the accounting method used.
For example, under accrual accounting, an unpaid customer invoice can increase reported revenue before you receive the money. Loan principal payments reduce cash without appearing as an operating expense, and purchasing equipment can affect cash differently from reported profit.
Reviewing your Profit & Loss statement alongside your balance sheet, unpaid invoices, and cash activity gives you a fuller picture.
KKeeping Up Business helps organize your financial reports so you can better understand your numbers.
