Profit And Cash Flow : Difference Between Profit And Cash Flow

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Question no. 1

Difference between profit and cash flow

(Jordan, Dolvin & Miller, 2015) defines profit as revenue after deducting the incurred expenses which is also called net income, where revenue includes total sales and any gains and cost & expenses includes cost of goods sold, salaries, maintenance, utilities insurance, rent, interest, transportation, depreciation. And cash flow is the difference between the actual cash that is received and the actual cash being utilized in the business. The cash may or may not be moved out from the business but profit is to ensure that business has made more earning than spending (Jordan, Dolvin & Miller, 2015).

In cash flow, revenues and expenses are recorded when the cash is actually trade off and it outlines from which source the cash is received and for what purpose it is used.

Since both profit and cash flow are related with what is remained and what is gone from the business, they may seem to be similar but the major difference is gross profit is recorded once the sales is made after deducting the cost of cost sold from total sales revenue either that is credit sales or cash sales. But cash flow shows whether the cash is moved out or entered into the business. Profit figures does not clearly show the detail transaction of an investing and financing activities but cash flows record them. For instance, when a firm make a credit sells of $2000 whose cost was $1000, the profit of $1000 is recorded after paying $1000 to the

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