Business – 5.1 Business finance – The need for business finance | e-Consult
5.1 Business finance – The need for business finance (1 questions)
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Answer:
- Cash is the actual money received or paid out by the business during a period – it includes cash in hand, bank balances and short‑term deposits.
- Profit (or net income) is the amount remaining after all revenues have been deducted by all expenses, including non‑cash items such as depreciation and amortisation.
- Differences:
- Timing – cash reflects when money moves, profit is based on the accrual accounting principle (revenues and expenses are recorded when earned or incurred, not when cash changes hands).
- Measurement – cash is a balance‑sheet item; profit appears on the income statement.
- Components – profit includes non‑cash charges (e.g., depreciation) and may be affected by credit sales, whereas cash does not.