QUESTION 63
WHAT’S THE DIFFERENCE BETWEEN CASH AND PROFIT?
Why it’s important: A surprising number of managers don’t understand the crucial difference between cash and profit. Such ignorance can seriously damage a manager’s credibility.
Cash is real. It physically exists. You can go to the bank, withdraw your money and hold it in your hands.
Profit does not exist in the physical world. It is a figure calculated by processing an organisation’s income and expenditure data in accordance with a range of accounting principles, professional practices, accounting standards and professional judgements. For example:
COMMON ACCOUNTING CONCEPTS:
Accruals: Accounts are not prepared on the basis of the cash you have received or paid out in the financial year. ...
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