Difference Between Cash Flow and Accounting Profit

This is caused by two accounting principles, one is called cash basis, that is, the money received is used as income, and the money is paid for expenditure, so that the net amount of income and expenditure is calculated as the net cash flow; The other is accrual.

That is, regardless of whether the actual expenditure is or not, it is regarded as the current income and expenditure, and the calculation is the net profit.

These two differences are mainly caused by some unpaid and uncollected receivables, which are called working capital in accounting.

Variation. There are still many differences, and your questions are not rigorous, and there is no bounty too lazy to say.

Cash flow is an important concept in modern finance, which refers to the general term of cash inflow, cash outflow and total amount generated by an enterprise through certain economic activities (including operating activities, investment activities, financing activities and non-recurring items) in a certain accounting period according to the cash payment system. That is: the amount of cash and cash equivalents in and out of the enterprise in a given period.

Accounting Profit (Accounting

profit)

It refers to the operating results of an enterprise in a certain accounting period. Profit includes net income minus expenses, gains and losses directly included in current profit, etc. Accounting profit, also known as book profit, is the profit disclosed by the company in the income statement.

In the actual operation of the business, cash.

Volume is even more important than accounting profits.

There is no direct correlation between a company's cash flow and profits.

The enterprise is in a period of growth and development, and the cash flow from operating activities may be positive, but the large investment results in a negative cash flow from investment activities, resulting in a negative overall cash flow of the enterprise.

The decline in gross profit margin and gross profit amount, the competition forced us to reduce the increase in management costs due to the increase in expenses during the period, and the gross profit is the selling price minus the cost. The enterprise has a profit from selling products, but due to the increase in expenses during the period, the profit is deducted.

While the turnover is rising, the expenses may be larger in the same period. Because the turnover increases and the scale of the enterprise expands, the system management ability of the enterprise does not match it. Some companies do not measure profits when they blindly expand, and spending will only cause profits to be lost faster.

The difference between cash flow and profit is as follows:

1. Different meanings.

Cash flow is the total amount of cash outflow and cash inflow of the investment project during its entire life cycle, and is a necessary information for evaluating the economic benefits of the investment plan.

Cash flow refers to the general term of cash inflow, cash outflow and total amount generated by an enterprise through certain economic activities (including operating activities, investment activities, financing activities and non-recurring items) in a certain accounting period according to the cash payment system, that is, the amount of cash and cash equivalents of the enterprise in a certain period.

Profit is the business result of the entrepreneur, the comprehensive reflection of the business effect of the enterprise, and the concrete embodiment of its final result. The essence of profit is the product of capital, which has nothing to do with labor, profit is the life of capital, and capital pursues the maximization of profits.

2. The content included is different.

The total profit of an enterprise is composed of three main parts: operating profit, investment income and non-operating income and expenditure difference. The content of cash flow, although mainly profit, contains other components. In addition to the purchase and sale of goods, investment or recovery of investment, it also includes the provision or acceptance of services, the purchase and construction of fixed assets, the borrowing of loans from banks or the repayment of debts, etc.

3. The basis of measurement is different.

The financial profit of an enterprise is calculated on the basis of accrual accounting, that is, income and expenditure should be considered in the benefit period, and the income or expenditure will be attributed to different periods for different periods, and then the profit for the period will be obtained.

Cash flow is calculated on a cash basis, i.e. the cash received or expended in that period is regarded as cash flow for the period, regardless of the accounting period in which the income and expenditure belong.

For example: sales of goods, provision of labor services, fixed assets, recovery of investment, borrowing of funds, etc., to form the cash inflow of the enterprise; The cash outflow of the enterprise is formed by purchasing goods, accepting labor services, purchasing and building fixed assets, investing in cash, and repaying debts.

Differences:1Net profit is accrual-based, 2Cash flow on a cash basis, 3The accrual basis and the cash basis are listed on page 97 of the 2022 first-class construction engineer qualification examination book—construction engineering economics.

Contact: 1The two are two different concepts, both of which reflect the operation of an enterprise for a certain period of time.

2.Cash flow can reflect the quality of net profit to a certain extent, 3For a specific comparison, see the construction project economy - income statement on page 138 and cash flow statement on page 140.

Cash flow generally refers to cash flow, and there is no difference between cash flow and cash flow.

Cash flow is an important concept in modern finance, which refers to the cash basis of an enterprise in a certain accounting period.

The general term for cash inflows, cash outflows and their aggregate amounts generated through certain economic activities (including operating activities, investment activities, financing activities and non-recurring items), that is, the amount of cash and cash equivalents inflow and outflow of an enterprise in a certain period. For example: sales of goods, provision of services, ** fixed assets.

recovering investment, borrowing funds, etc., to form the cash inflow of the enterprise; The cash outflow of the enterprise is formed by purchasing goods, accepting labor services, purchasing and building fixed assets, investing in cash, and repaying debts. Cash flow is a very important indicator to measure whether the business is doing well, whether there is enough cash to repay debts, and the liquidity of assets.

Cash flow in the engineering economy is the cash inflow, outflow, and the difference between inflow and outflow (also known as net cash flow) that actually occurs in the proposed project at various points in time throughout the project calculation period.

Cash flow is generally based on the interest calculation period (year, quarter, month, etc.) as the unit of time, using a cash flow chart or cash flow statement.

to represent. Net cash flow is an indicator in the cash flow statement, which refers to the balance (net income or net expenditure) of cash and cash equivalents minus outflow (expenditure) of cash and cash equivalents in a certain period, reflecting the net increase or net decrease in cash and cash equivalents of an enterprise during the period.

Net present value. It refers to the difference between the present value of future cash inflow income and the present value of future cash outflow and expenditure. The basic indicators of the net present value method in project evaluation. Future inflows and outflows are based on projected discount rates.

The net present value of the present value coefficient for each period is determined after it is converted to the present value. Net cash flow is an important factor that directly affects the size of the market. On the one hand, the net present value is subject to the influence of macroeconomic conditions, and on the other hand, it is affected by the national income distribution policy, consumption policy, and artificial profit rate.

Directly determines the level of consumer purchasing power.

Relationship between cash flow and net profit:

1.Definition of net profit and cash flow.

Net profit is the final financial result of an enterprise in monetary terms achieved in a certain period of time, reflecting the operating performance and financial ability of the enterprise. It is based on the accrual basis of accounting, based on the ratio and causal relationship of income and expenses: cash flow reflects the actual inflow and outflow of cash in and out of the enterprise.

2.Distinguish. Net profit and cash flow are the same amount over the entire life of the business. However, in a given accounting period, there will be differences in amounts, which are due to the use of different financial concepts and the passage of time.

Net capital expenditures. A business is an outflow of cash when it is paid, but only later in the form of depreciation.

Reversal of profits. Therefore, in any accounting period, if the capital expenditure is greater than the depreciation, the excess amount is the amount by which the cash flow is lower than the net profit.

Inventory turnover. There is an outflow of cash when inventory is purchased, and only when there is a profit from inventory**.

Reflected to the profit. Therefore, in a fiscal year, if the inventory increases, the cash flow is lower than the net profit.

The existence of receivables and payables. Proceeds receivable from sales on credit and expenses payable on credit are taken advantage of at the time of invoicing.

Profit calculation, but only when the actual settlement is the increase in cash flow.

Movement of other additional funds. Having additional money coming into the business, or repaying borrowings, is cash flow, but it only has an impact on the balance sheet, not on earnings.

3: The connection between the two.

Net profit is the basis for projected future cash flows.

The difference between them can reveal the quality of the net profit.

First, the nature is different.

1. Nature of cash flow statement: the increase or decrease of cash (including bank deposits) of an institution in a fixed period (usually monthly or quarterly).

2. Nature of income statement: financial statements that reflect the operating results of an enterprise in a certain accounting period.

Second, the role is different.

1. The role of the cash flow statement: determines the short-term viability of the company, especially the ability to pay bills. It is a statement that reflects the dynamic state of a company's cash inflows and cash outflows over a certain period.

2. The function of the income statement: it reflects the realization of the income of the enterprise in a certain accounting period, that is, how much the main business income is realized, how much other business income is realized, how much investment income is realized, and how much is the non-operating income realized.

It can reflect the expenses of a certain accounting period, that is, the cost of main business, the tax of main business, sales expenses, management expenses, financial expenses, and non-operating expenses; It can also reflect the results of the production and operation activities of the enterprise, that is, the realization of net profit and profit, so as to judge the preservation and appreciation of capital.

Third, the structure is different.

1. The structure of the cash flow statement: it is divided into the main table and the attached table (supplementary information). The amounts of each item in the main table are actually the attribution of each cash inflow and outflow, and the amount of each item in the schedule is the current amount or the difference between the closing balance and the opening balance of the corresponding ledger account.

Schedules are an indispensable part of a cash flow statement. The completion of the attached table of the cash flow statement is summarized as follows.

2. Income statement structure: generally there are two parts: the head of the table and the main table. The first part of the table indicates the name of the report, the preparation unit, the preparation date, the report number, the currency name, the unit of measurement, etc.; The positive statement is the main body of the income statement, reflecting the various items and calculation processes that form the operating results, so this statement was once called the profit and loss calculation book.

The income statement and the cash flow statement are two of the three major financial statements, and these two statements are not comparable; The income statement is a financial statement that reflects the operating results of an enterprise in a certain accounting period; The cash flow statement mainly reflects the impact of each item on cash flow in the balance sheet, and is divided into three categories of activities: operation, investment and financing according to its use.

Net profit and cash flow over the life of the business.

It is a coincidence that they are exactly the same in terms of amounts, but that they are exactly the same in terms of amount in a certain accounting period. The reason for the difference between the two brothers is due to the use of different accounting concepts and the passage of time. Specifically, it is manifested in the following aspects:

1. Capital expenditure.

Capital expenditures are a cash outflow at the time of payment, but are later written off as profits in the form of depreciation over their estimated useful life. Therefore, in any accounting period, if the capital expenditure exceeds the depreciation, the excess amount is the amount by which the cash flow is lower than the net profit; The opposite is true. 2. Inventory turnover.

The increase in inventories is a cash outflow at the time of purchase payment and can only be reversed later when the net profit is obtained from the sale. Therefore, in an accounting period, if the inventory increases, the cash flow is lower than the net profit, and the amount that is lower is this increase; Of course, if there is a decrease in inventory or work-in-progress, the opposite is true. 3. The existence of receivables and payables.

Accounts receivable. Reflected credit revenue and accounts payable.

The corresponding credit purchase expenses are calculated as profits at the invoicing stage, and only when the cash flow is settled in cash in the future, the increase or decrease of cash flow. Therefore, if accounts receivable in an accounting period.

increase, cash flow will be lower than net profit; And if the accounts payable increases, the cash flow is higher than the net profit. Otherwise, the opposite is true. To sum up, the most critical indicator to examine the operating efficiency of an enterprise is net profit.

The balance after subtracting various costs from the total profit of the enterprise is. The level of net profit directly reflects the operating conditions of the enterprise and is the most concerned by shareholders. The registered capital of an enterprise is another concept, and when the shareholders set up and return to the enterprise, they will fulfill the obligation of capital contribution, and the total amount of all capital contributions is the registered capital.