Cash and Profits
Quick Bookkeeping Insights > Additional Basic Topics
Cash Flow: Cash flow refers to the money moving in and out of a business during a specific period. It indicates whether more money is coming into the business than going out. Positive cash flow means more money flowed in than out, while negative cash flow means the opposite.
Additional Explanation:
- Cash flow focuses on actual cash movements.
- It differs from revenue and expenses as it tracks when money physically enters or leaves the business.
- Cash Flow is reported in a formal cash flow statement, detailing the cash in and out of a business for a period of time.
Profit: Profit, also known as net income, is what remains from sales revenue after deducting all costs. A profit signifies that revenue exceeds costs, while a loss indicates costs exceed revenue.
Additional Explanation:
- Profit reflects the financial health of a business after all expenses are considered.
- Profit/Loss is reported in a formal income statement also known as a profit and loss statement, presenting the revenue and expenses for a period of time.
Summary of Differences: While both measurements are crucial for assessing business performance, they serve different purposes:
- Cash flow tracks actual cash movements in and out of the business.
- Profit reflects how well a company generates revenue compared to its expenses.
Importance:
Both an adequate cash flow and earning a profit are critical to the success of a business.
Cash Profits