Chartered Accountant · ICAI M.No. 153926 · FRN 136869W
Two different things
Profit is an accounting measure — revenue minus expenses on an accrual basis, recognising a sale when invoiced and a cost when incurred, regardless of when cash changes hands. Cash flow is concrete: the actual rupees moving in and out of your bank account. They answer different questions — ‘are we making money?’ versus ‘do we have money?’.
Why they diverge
The two split apart because of timing and non-cash items: a sale on 60-day credit is profit now, cash later; buying inventory or repaying a loan is cash out but not an expense; depreciation is an expense but no cash moves. So a growing, profitable business can still face a cash crunch. Profit pays no bills — cash does.
A worked example
Example: a company books ₹50 lakh profit but its bank balance falls, because customers owe ₹80 lakh (booked as sales) and it spent cash on stock and a loan repayment. On paper it’s thriving; in the bank it’s tight. That’s why the monthly review tracks both the P&L and cash flow. Confusing the two is a classic, dangerous mistake. Our team can help you manage both.