Difference Between Cash And Profit

Question 1

Why might a profitable business have cash flow issues (overdrawn)?

Answer 1

1. Credit sales
2. Excessive drawings of cash
3. Prepaid expenses
4. Paying off loans
5. Buying NCAs
6. Accrued income

Question 2

Reasons for cash and profit being different

Answer 2

1. Some transactions only impact profit e.g. depreciation
2. Some transactions only impact cash e.g. purchase of NCAs
3. Some impact both at different times e.g. Accruals and prepayments