Your P&L Says You Made $80,000. So Where Is It?
Profit and cash are not the same number. Loan principal, owner draws, inventory and unpaid receivables can explain why profit is not in the bank.
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Is profit the same as cash?
Your profit and loss statement says you made $80,000. So why is there not $80,000 sitting in the bank? Profit and cash are not the same number. The P&L shows the result of the income and expenses reported there. But cash can move into places that do not feel like an ordinary expense on that report.
Where could the cash have gone?
Some of it may have gone toward loan principal. Some may have left the business as owner draws. Cash may also be tied up in inventory, or it may still be sitting in receivables because customers have not paid yet. That is how a business can show a good-looking profit while the checking account tells a very different story. The report is not automatically wrong, and the money did not necessarily disappear. You need to understand where it moved. Looking at profit alongside the places cash went gives you a clearer picture of what the business earned what it is still waiting to collect, and what is actually available now.
Who can help?
Need help getting your books cleaned up? Ta-Da Accounting can help you get back on track.
Need help getting your books cleaned up? Call (310) 800-4494 or send us a note.