Help!!! "What is the difference between cashflow abd profit?" thx! Watch

charavee
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thanks
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Cataclysm
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First of all they appear on two different documents:

Cash Flow - Cash Flow Statement or a Cash Flow Projection.
"'A Cash Flow Statement tells us how much cash is available in a business to keep the business running - the actual cash flow. A Cash Flow Forecast gives an estimate of how much cash will be available in a business. It is used to plan ahead and to help monitor business progress over the period."

A Cash Flow shows the amount of money coming into the business (cash in-flow) and going out of the business (cash out-flow).

Profit - appears on Profit and Loss account
Profit is the money you are left with after all deductions. There are two types of profit: Gross Profit and Net Profit.

In Gross Profit only the cost of making the goods are deducted from Sales Revenue (aka Turnover)
In Net Profit expenses (such as depreciation, bills, etc) are deducted from the gross profit.

Further reading:
This site shows the difference between a cash flow statement and profit and loss account

Hope that helps!
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RJA
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Just to add one thing, there are FOUR types of profit:

Gross Profit (Turnover - Cost of Sales)
Operating Profit (Gross Profit - Expenses)
Net Profit (Operating Profit - Tax)
Retained Profit (Net Profit - Dividends)

HOWEVER, these may be written differently on different accounts, for example, a sole proprietor would not pay dividends, so it wouldn't be on the account.
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charavee
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thanks alot
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the_0ne
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Your right but i don't understand this very well!

Right, if profit is sales revenue less costs and cash flow is the money coming into the business and the outflows of cash from a business. Then how are the inflows not the same as sales revenue? Also how the outflows not the same as costs of making the goods?
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TheAP
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(Original post by R.J.A)
Just to add one thing, there are FOUR types of profit:

Gross Profit (Turnover - Cost of Sales)
Operating Profit (Gross Profit - Expenses)
Net Profit (Operating Profit - Tax)
Retained Profit (Net Profit - Dividends)

HOWEVER, these may be written differently on different accounts, for example, a sole proprietor would not pay dividends, so it wouldn't be on the account.
Net Profit is a loose term...there is no fixed definition. For what you have defined Net Prift as, Operating Profit less tax, a better term would be Profit after tax.
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TheAP
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(Original post by the_0ne)
Your right but i don't understand this very well!

1)Right, if profit is sales revenue less costs and cash flow is the money coming into the business and the outflows of cash from a business. Then how are the inflows not the same as sales revenue?

2)Also how the outflows not the same as costs of making the goods?
1)Because Sales Revenue =cash sales + credit sales

Credit sales give rise to Debtors.

Since debtors do not pay for a certain time, their cash flow will not appear on the cash flow statement. Hence money inflow is not equal to Sales Revenue.

2) Again, when the firm buys raw materials to make the good, it buy on "credit". For eg, Firm A buys wood for £10 on credit, where payment is due within 1 month. It uses labour of £15 to turn the wood into a table.

If Firm A is still yet to pay the £10, in the Cash Flow Statement, the only outflow would be £15 for labour, whereas the actual cost ot the good is £25.
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the_0ne
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(Original post by TheAsianProdigy)
1)Because Sales Revenue =cash sales + credit sales

Credit sales give rise to Debtors.

Since debtors do not pay for a certain time, their cash flow will not appear on the cash flow statement. Hence money inflow is not equal to Sales Revenue.

2) Again, when the firm buys raw materials to make the good, it buy on "credit". For eg, Firm A buys wood for £10 on credit, where payment is due within 1 month. It uses labour of £15 to turn the wood into a table.

If Firm A is still yet to pay the £10, in the Cash Flow Statement, the only outflow would be £15 for labour, whereas the actual cost ot the good is £25.
Ahhh yeah i get it now, thanks.
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