Difference between profit and cash-flow

Last updated: 01.03.2016

Profit is usually not equal to cash flow because profit is defined as the difference between income and expenses, while cash flow as the difference between receipts and expenditures.

Accounting profit is the final line in the income statement, while cash flow is the final line in the statement of cash flows.

 

Income is formed by monetary benefits generated from entity´s economic activities. 

Receipts represent inflow of cash (either cash in hand or to a bank account).

The differences between income and receipts result for example from irrecoverable debts (e.g. the income is recognized at the time of delivery, but the customer still has not paid).

 

Expenses represent consumption of inputs (material, labor etc.) incurred in order to generate income.

Expenditures represent outflow of cash (either cash in hand or from a bank account).

Differences between costs and expenses arise from, for example, purchases of fixed assets (expenditure is incurred at the moment of purchase, but depreciation gradually throughout the lifetime of assets) or purchases included in the value of inventory ​​and become costs at the moment of their sale.

More examples can be found in the article Difference between expenses and expenditures.



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