Why are cash and profit not the same?

There are many reasons why a businesses cash or bank balance are not the same as profit made by the business. Cash balance is calculated using cash received minus cash paid and added to any opening cash balance. Profit is calculated as revenue earned minus expenses incurred. In an accrual accounting system revenue is not the same as cash received and expenses are not the same as cash paid. These differences are further explained below.

Revenues that are not receipts
  • Credit sales
  • Discount revenue
  • Stock gain
  • Accrued revenue
Receipts that are not revenues
  • Receipts from debtors
  • GST received
  • Prepaid revenue
  • Capital cash contribution
  • Loan received
  • Sale of non-current asset
Expenses that are not payments
  • Cost of sales
  • Depreciation
  • Stock loss
  • Accrued expenses
Payments that are not expenses
  • Payments to creditors
  • GST Paid
  • Prepaid expenses
  • Cash drawings
  • Loan repayment
  • Purchase of non-current asset

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