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Friday 21 July 2017
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The Difference Between Profit & Cash

One of the main reasons the accountancy field even exists is Profit – whether a business is making any or not, as the case may be. While accountancy provides the detailed overview of what is happening in the business, the business in question is the machine that functions as the conduit for the money.

While there may indeed be profit in the business it should always be kept in mind that this is not yet hard cash in the bank. Profit and Cash are two completely different things.

Assets, liabilities, profit, loss… all these are calculated by your accountants who should be working as professionals to show you all these details in a transparent way. Not only will that make it easy for you to understand but that should also make it easy for anyone else looking at your accounts to understand.

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There are standard international frameworks and formats that accountants can use to show your business figures and this makes it easier when scrutinising the figures of one company and comparing them to those of another company in a different country.

Say, for example, you have different branches, one in London and another in Paris. Using the same internationally recognised format will make it easier to understand the numbers even if they have been compiled by two different accountants from the countries of the respective branches. Even if you are just looking to compare the figures of your company to a similar company in another country it is a lot easier when the figures are presented in the same format.

Think about others who might have an interest in looking at your accounts such as a prospective buyer, a business loan provider? A standard format for presenting accounts is also helpful in making sure authorities such as Companies House and HMRC do not think you are deliberately trying to hide anything with an unfamiliar accounting set up or any vague or general explanations about your accounts.

Professional accountants will provide a detailed overview of your business using protocols that are generally familiar to the relevant people and that do not give the impression that you are hiding anything.

Standard formats can be good for more complex businesses with a high turnover as well as smaller businesses with lower turnover. Using a standard format overviews and reports can be more easily completed to show relevant data. This is especially useful if you or another interested party is looking to show how profits or losses have been affected by certain influences or factors. For example you may need to show how the value of certain assets has been affected by depreciation.

Smaller businesses with a lower turnover and lower number of people employed may find that the figures held in their accounts really do accurately reflect the amount held in their bank accounts. For businesses like these it is probable that the money in the bank does reflect what is printed in the books from the accountant. Alternatively it can also be the case for small businesses, like their larger counterparts, that the accounts may show a loss while there is an abundance of funds in the bank. Or the accounts may show profit where the bank statements show otherwise.

Is your business struggling with such a contradiction? Then you should get in touch with your accountant. It is not that they have done anything wrong or failed you as an accountant. They just need to show you in an easy-to-understand way what the books mean in real-world terms. There can be a lot of jargon in the accountancy world and if you are unfamiliar with this it can be daunting. With the help of your accountant you should be able to solve the puzzle and help your business accounts to add-up.

In a lot of cases all the accountant has to do is help you to understand where the cash is in order for you to find the profit. It could be that your business is owed money by customers. Conduct some housekeeping and chase up those who owe you money. These shall be funds that have been written into your accounts but where the money just has not landed in your account.

With having to pay in advance for certain supplies you may find that money has you’re your account without yet having received the goods or services you have paid for. For instance with renting commercial space in the UK you often have to pay up to three months in advance. Instances such as this can make a significant impact, particularly for smaller businesses with lower turnover.

Check that you do not have any invoices from supplies that you have yet to satisfy. Paying these could solve the discrepancy between the lower amount showing as available in your books and the higher amount showing in your bank account.

If you are in doubt ask your accountant to explain the cash and profit in your business and trace their routes.




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