I'm studying business management which has gone well until now, when the subject is all about accountancy.

This seems to have a languauge and Jargon all of its own, and it appears to be really confusing.Can somebody please help me to understand the difference between cash flow and profit and loss statements? I don't want to be able to write all these reports but just to understand what they are telling me.

If you sell some goods or service, you (hopefully) make a profit at that time. There's no effect on your cash flow though. Some weeks later, when the payment arrives, the cash flow is affected.

Profit can be quite easy to get sometimes. You just find a business that's very short of money and offer to supply them. When businesses are short of money and are not paying suppliers on time, they find it difficult to persuade suppliers to deal with them so they would welcome any reasonable offer. You make the profit with not much difficulty but your problems come when you try to get paid.

In simple terms the difference lies in timing.Profit is Revenue(Turnover) less all Expenditure.Some expenditure goes towards the purchase of capital assets for the business.Buildings,furniture,computer equipment,vehicles,which are then written off as expenditure over the anticipated life of the asset.(say 5 years for a vehicle).

Cash flow would recognise that funds have left the business for those capital purchases now.Essentially,why some start up businesses can appear profitable at first but can't maintain enough liquidity to survive without expensive borrowings which ultimately reduces profit.

Revenue (sales) may be anticpated in the Profit and Loss Account but not be deemed to be cash until such time as the customer pays and you receive the proceeds.The cash flow statement will show the change in debtors (from the balance sheet) to adjust for this.

I have tried to provide a brief answer, but of course, there are many complications.I have to ask why you would seek an answer here rather than consult face to face with your lecturers or consult your business text books? By talking this through with a professional, getting face to face feedback , will be much more beneficial to you than any snippet you may pick up here.

Many thanks for your response, I am studying by distance learning so unfortuanately face to face consultations with a lecturer are a luxury I do not have. I have of course read through all my text books but there are written in such a way that I feel are unclear to a person with little prior knowledge of the subject. You have written you answer in a very readable and informative way, please do not underestimate the value of 'snippets' of information as they help information slot into place.

I heard one snippet today that I 'm sure you've heard before, but it made me smile "Profit is vanity but cash is sanity"

I have arranged to speak to a professional later this week, but it really does help to get as many different view points as possible from people with experience and knowldege.. Thanks again

Glad to have been of help.I wasn't criticising ,just felt that a two way dialogue is always better because the teacher can assess or test that things are sinking in.Glad you have organised such a session.

I do think you are going about it the right way in terms of understanding.It is much better to get a grip of what the various statements tell you and what the fundamentals are.Once that is acheived,then it helps to make sense of why a particular adjustment or entry is made.

Take depreciation for example.In the cash flow statement,depreciation is added back to profit because it is a non cash item (an adjustment to calculate profit) . The real cash item was the capital purchase.

Good luck with your studies.Please come back if you need any other help.