Profit and cash answer different questions. Profit asks whether a sale earned more than it cost. Cash asks whether money has actually moved. The tool below puts both views of one fictional sale side by side, so the gap between them is visible.
It supports the ideas in distinguishing profitable trading from a cash shortage and explaining a delayed receipt’s effect. It is part of the learning tools section, and nothing you type is saved or sent.
How do I use the tool?
- Enter the sale value for goods delivered today.
- Enter the cost of those goods, recognised today.
- Enter the cash collected from the customer today. Enter 0 if the whole sale is on credit.
- Enter the cash paid to the supplier today. A figure below the cost means the rest is owed.
- Press Show the bridge. Use Reset to go back to the starting example.
Amounts must be zero or more. In this simple model, cash collected cannot exceed the sale, and cash paid cannot exceed the cost.
How do I read the result?
The summary line states the two answers in one sentence: the profit, and the net cash today. Below it are two tables with the columns Today, Later and Total.
- Profit table. Sales recognised, less cost recognised, gives profit. It does not depend on when money moves.
- Cash table. Cash received and cash paid, split into what happens today and what is still to come. The Total column shows where cash ends up once everything is settled.
- Balances at the end of today. The amount still owed by the customer (a receivable) and owed to the supplier (a payable).
Notice that the Total for net cash equals the profit. Over the whole cycle the two agree. The difference lies in timing.
Worked example with the starting figures
The tool opens with a sale of 500, a cost of 300, nothing collected and 300 paid to the supplier.
Profit: 500 − 300 = 200. The business has earned this, because the goods were delivered and the cost belongs to them.
Cash today: received 0, paid 300, so net cash is −300. The business is 300 poorer in cash today.
Later: the customer still owes 500, and the supplier is owed nothing. When the customer pays, net cash later is +500.
Total cash: −300 + 500 = 200, the same as profit.
Now change the cash paid to 100. The profit stays at 200, because profit never depended on the payment. Net cash today becomes −100, and 200 is owed to the supplier.
What mistake does the tool help me catch?
A common answer says, “The business made a profit of 200, so it has 200 more cash.” The tool shows why this fails: today the business has 300 less cash and a 500 receivable.
The fix is to name the measure. If the question asks about profit, use sales and their costs. If it asks about the ability to pay bills, follow the cash.
I mix cash flow with profit and I confuse profit with available cash describe this error in detail.
Assumptions and limits
- The model has one sale, one cost and one day of timing. Real businesses have many transactions and other items, such as depreciation.
- The illustration is simplified. Real business accounts may not follow this layout.
- All figures are fictional. The tool makes no comment on any real company.
- It does not recommend a credit policy. Whether to allow credit is a judgement that depends on the case and the business’s objectives.
Where to go next
Build the skill from both sides. Start with constructing a simple cash forecast and distinguishing revenue, gross profit and net profit, then see the whole topic in the Business learning guide.
If you want someone to check your reasoning on case questions, one-to-one Business tuition can use your own past attempts as the starting point.