Online Exclusive: Accounting Basics for Small Contractors — Statement of Cashflows

How come the net profit on my income statement is so much more than the money I have in the bank? Where did it go? Profits do not equal cash! You don’t pay your bills with profits. You pay your bills with cash. It’s possible for a company to be profitable and yet be cash-starved. Cash will come into and go out of the company through operating, investing and financing activities.

In the last installment of this series we focused on the income statement. We looked at the various components of it and some examples of income statements. Recently, a number of contractors have asked about the difference between profit and cash. Because of those questions, I’m going to focus specifically on that question and the financial statement that deals with that topic. We’ll take a

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