When you look at your profit and loss statement (sometimes we use shorthand here and call it your P&L), you might assume that “profit” means the same thing as “cash in the bank.” But that’s not always the case.
Sometimes, your reports show a profit—but your bank balance has a different number, or is positive when it should be negative.
Profit represents how much your business earned during a specific period.
Cash flow shows how much money actually moved in or out of your accounts, and includes carryover from previous years.
Example—your profit and loss (P&L) might show $419 in profit for the year, but your balance sheet might show $61,000 in cash. That doesn’t mean your reports are wrong—it simply means your cash flow includes funds from previous years, loans, or other inflows that aren’t counted as current-year profit.
Understanding this distinction helps you make better decisions about your operations, taxes, and overall financial health. In our next post, we’ll explore why your cash balance can differ so much from your profit.
About Mohammad
Mohammad Akif is the co-founder of Akif CPA with over 15 years of tax, accounting, and bookkeeping experience as a Certified Public Accountant (USA) and a Chartered Professional Accountant (Canada) of tax and accounting experience. Learn more about Mohammad here: https://mohammad.cpa
