Open lesson · Financial communication
Profit is not cash.
Explain how a profitable business can finish the year with less cash in the bank.
01 · One useful distinction
Profit measures performance.
Cash keeps the business moving.
Profit includes revenue earned and expenses recognized during a period. The cash may arrive or leave at a different time. Some expenses, such as depreciation, do not use cash in that period.
Profit
What the income statement reports for the period.
Operating cash
Cash generated or used by the business’s operations.
Bank balance
Cash at a point in time, after operating, investing and financing activity.
The useful question: What explains the difference between reported profit and cash movement?
02 · Fictional worked example
Follow the cash at Riverton Workshop.
Riverton reports $120,000 of net income for the year. Its only operating reconciliation adjustments are shown below. Start with profit, then reveal each adjustment to see what changes.
| Item | Adjustment | Running amount |
|---|---|---|
| Net income | Starting point | $120,000 |
| Depreciation | +$20,000 | $140,000 |
| Increase in receivables | -$30,000 | $110,000 |
| Increase in inventory | -$45,000 | $65,000 |
| Increase in payables | +$15,000 | $80,000 |
Start with the year’s reported net income. It is the beginning of the reconciliation, not a cash balance.
Why isn’t operating cash the closing bank balance?
Riverton also bought equipment for cash and repaid loan principal. In this simplified example there are no other cash movements.
- Operating activity
- +$80,000
- Equipment purchase · investing
- -$100,000
- Loan principal repaid · financing
- -$20,000
- Net change in cash
- -$40,000
- Opening cash
- $60,000
- Closing cash
- $20,000
A profit of $120,000, but a fall in cash of $40,000. Operating performance, payment timing and investment decisions answer different questions.
03 · Check your understanding
Explain the number before recommending an action.
Continue with financial communication
Explain financial reports to the people using them.
The financial-communication course is the closest next step to this sample. Explore how to understand the audience, explain financial reports and use analysis and KPIs in the conversation.
This original sample is a standalone introduction, not an excerpt from the paid course. Review the curriculum, price and access terms on Thinkific. Course completion does not automatically confer CEA certification.