A profitable sale may bring no cash today
Profit and cash flow can move at different times. A business may record a ₹20,000 sale when it delivers work, even if the customer will pay next month. The sale can contribute to this month's profit while providing no cash yet for salaries, rent or other payments.
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Timing creates the gap
Under accrual accounting, revenue and expenses are recognised according to accounting rules rather than simply when cash changes hands. This makes profit different from the movement of money through a bank account.
Suppose a business completes a ₹20,000 service on credit and pays ₹12,000 of related costs immediately. Ignoring other expenses, the work contributes ₹8,000 to profit. But until the customer pays, cash from these transactions has fallen by ₹12,000.
The unpaid customer amount is recorded as a receivable. Collecting it later brings cash in without creating the same sale again.
This timing difference helps explain why a business can report a profit and still struggle to meet payments falling due before its customers settle their bills.