Cash V Profit, part 1

This is pre chapter 12 stuff.

There is a dot point on the study design that asks students, you, to understand the difference between cash and profit.  The best way to consider this is to compare and contrast two reports:  the Cash Flow Statement (CFS) and the Income Statement (IS).

Main point
These two reports report on different concepts.  The CFS reports on cash inflows and cash outflows. The IS reports on revenue earned less expenses incurred to calculate accrual profit. Consequently, it is unlikely that the change in cash reported in the CFS will be the same as the net profit or loss reported in the IS.  

Specific examples
That point above, is a good general point to make BUT most questions on this topic require specific examples.  So here are some.  More will follow after we have done chapter 12.

Think about a CFS.  What cash inflows could be reported in the CFS which would NOT be reported as revenue in the IS?

• GST collections
• ATO refund
• Debtor receipts
• Capital injection of cash
• Loan borrowings

Now think about the cash outflows which could be reported in the CFS which would NOT be reported as expenses in the IS?

• GST payments
• ATO settlement
• Creditor payments
• Purchase of non current assets
• Purchase of stock
• Drawings
• Loan repayments

Think about an IS.  Which revenue items could be reported in the IS which would NOT be reported in the CFS?

• Credit sales
• Discount revenue

Which expense items could be reported in the IS which would NOT be reported in the CFS?

• Cost of sales
• Discount expense
• Advertising (stock)
• Bad debts