My Profit & Loss statement says I made money, but where did it all go? Let’s break it down. Have you ever looked at your P&L and it says that your net Income is, let’s say $10,000? Then, you look at your bank account and you definitely do NOT have $10,000! (don’t feel silly, it happens to everyone) Well, that's because net income and cash flow mean different things and should NOT be used interchangeably. Net Income is the profit that your small business earned over a period of time. Whereas cash flow is the money you actually have on hand. We need to remember that several different things can cause this difference. If you are running accrual basis accounting, your P&L is actually showing revenue when it was invoiced vs. when it was actually received. So, odds are, you are showing income that hasn’t been deposited into the bank yet, in turn affecting your cash amount. Also, if you are paying back loans or taking owners draw, this will affect your cash flow and not your P&L. Loans and owner’s draws are reported on the balance sheet. Not confusing at all, right? Wrong. It IS confusing. Don’t be afraid to ask your CPA or bookkeeper all the questions! No question is dumb, I promise.
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