# Cash Flow vs Profit Watch

1. Hello everyone could someone help me out with this problems:

Say a business bought 2 TVs for £50 cash each and then sold one for £100 does that mean

Cash out flow = 100 (or should this be 50??)
Cash inflow = 100
Net cash flow = 0 (so it wouold be 50???)

Revenue = 100
Expense = 50
Profit = 50

I am certain than the profit is correct as you apply the matching principle, but it the cash flow correct? Do you apply a matching principle to cash flow/can you apply the mathing principle to cash flow?
2. (Original post by zcomputer5)
Hello everyone could someone help me out with this problems:

Say a business bought 2 TVs for £50 cash each and then sold one for £100 does that mean

Cash out flow = 100 (or should this be 50??)
Cash inflow = 100
Net cash flow = 0 (so it wouold be 50???)

Revenue = 100
Expense = 50
Profit = 50

I am certain than the profit is correct as you apply the matching principle, but it the cash flow correct? Do you apply a matching principle to cash flow/can you apply the mathing principle to cash flow?
Outlay = 2 x £50
= £100
Sales = 1 x £100
= £100

Total sales = £100
Total expense = £100
You have £0 profit.

But you have inventory to sell. Sell it and you will make a profit. You have currently 'Broke Even'
3. (Original post by Steverockin)
Outlay = 2 x £50
= £100
Sales = 1 x £100
= £100

Total sales = £100
Total expense = £100
You have £0 profit.

But you have inventory to sell. Sell it and you will make a profit. You have currently 'Broke Even'
But in class we were told to apply the matching principle so you should only charge the sell of one TV to the purchase of one TV? Otherwise surely it wouldn't balance?

Also so the net cash flow is zero then?
4. (Original post by zcomputer5)
But in class we were told to apply the matching principle so you should only charge the sell of one TV to the purchase of one TV? Otherwise surely it wouldn't balance?

Also so the net cash flow is zero then?
If you just consider the 1 sale made then the profit is £50.
5. (Original post by Steverockin)
If you just consider the 1 sale made then the profit is £50.
I agree but I am stuck on cash flow? Is the net cash flow just 0?
6. (Original post by zcomputer5)
I agree but I am stuck on cash flow? Is the net cash flow just 0?
Yes.
7. (Original post by Steverockin)
Outlay = 2 x £50
= £100
Sales = 1 x £100
= £100

Total sales = £100
Total expense = £100
You have £0 profit.

But you have inventory to sell. Sell it and you will make a profit. You have currently 'Broke Even'
This is absolutely wrong. You have made a profit of £50 (just not made any cash). Break even would be if you sold the TV for £50.

You're figures were correct. See my answers below:

Cash out flow = 100
Cash inflow = 100 (assuming the customer has actually paid for the TV)
Net cash flow = 0

Revenue = 100
Expense (cost of sale) = 50
Profit = 50
8. Note that buying stock is not an "expense". If you buy 2 TV's for £100 then your expense is NOTHING until you have sold the TV's on. You still have £100 worth of stuff, its just not in cash

At the point of sale, your revenue (sales) are £100 and your expense would be £50 because you now no longer own the TV
9. The key is to think of the balance sheet:

Stock- 1 TV 50
Cash 0

Retained Profit 50

Profit and loss

Sales 100
Cost of sales - 50
Profit 50

Cashflow

Sales 100
Purchases -100
Net cashflow 0

If in doubt look at the effect on all three, they need to marry up, every debit has a credit.
10. DJKL has it exactly right. The first few answers were comically bad!

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