Cash Flow Statement vs Profit and Loss Statement: Understanding the Difference
It can be difficult to understand why you can see a healthy profit on your profit and loss statement but there is little money in your bank account.
It is essential for a business owner that to understand both statements in order to manage their business.
What is Profit and Loss Statement?
The profit and loss statement is a report that provides details of income and expenses and result of business’s profit or loss during reporting period.
Income comes from business activities for example sales, fee for services, interest income and dividends received. It includes income from sales that generated and invoiced but not yet received.
Expenses are the cost of operating a business in order to produce the income for example rent, bank charges, wages and insurance. It includes good and services received but not yet paid.
Profit is when income is more than expenses for the reporting period and profit will increase the net worth of business.
Loss is when income is less than expenses for the reporting period and loss will reduce the net worth of business.
What is Cashflow Statement?
The cash flow statement is a summary of cash flow in and out of your business that only includes income received, and expenses recorded and already paid. The difference is that it doesn’t include income generated but not yet received and expenses invoiced but not yet paid.
Understanding these statements can help you make decision to improve your cashflow.
If you want help to understand these statements or ways to improve your cash flow.
BOOK a FREE Cash Flow Strategy Session with me to find out how to take control of your cash flow and build a solid business.
