Cash vs Profit Flashcards

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Note: We may include questions that have multiple correct answers. It's useful to remember specific examples to understand these concepts better.

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What is cash in a business?

The money a business has now in its bank and till to pay bills.

What is profit?

The money left after total costs are taken from total revenue over a set time.

What is the formula for profit?

Profit equals total revenue minus total costs.

How is cash different from profit?

Cash is money in and out now. Profit compares revenue and costs over a time period.

Why can a firm make a profit but still have cash problems?

Many sales may be on credit, so customers have not paid yet.

Give one cash inflow that does not increase profit.

A bank loan (or owner’s money) brings in cash but does not increase profit.

Does repaying a loan reduce profit?

No. It reduces cash. Only the interest is a cost.

When a sale is on credit, which rises first: profit or cash?

Profit rises when the sale is made. Cash rises only when the customer pays.

What happens to cash and profit when you buy stock for cash and sell it later?

Cash falls now when you buy. Profit only comes when the stock is sold.

Why can a profitable business still fail?

Because bills must be paid in cash; without cash it cannot keep trading.