Accounting Profit and Cash Flow – What is the Difference between Them
There is a difference between accounting profit and cash flow. The former refers to the revenue gathered from the sale of services and products minus expenditures. It does not matter whether the payment is in cash or not received yet.
Then expenses are still deducted from the revenues (profit) whether or not the expenses are paid in cash now or at a later date does not matter.
Cash flow, on the other hand, is the difference between the actual cash received and the actual cash used to do core business functions. Cash flow is seen as a practical and real measure of company performance.
A company makes an accounting profit when it is making more than it is spending from its daily transactions. Each time a sale is made a profit is recorded and when money is received a cash flow is recorded.
If a profit is recorded and the actual cash associated with it stays pending, your business performance could be damaged.
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