Your profit-and-loss statement measures revenue earned minus expenses. Your bank account reflects the actual timing of every dollar moving in and out.
Four common reasons
Customers have not paid yet. Revenue may appear before the cash arrives.
Loan principal is not an expense. It reduces cash but does not reduce profit in the same way.
Equipment purchases use cash. The cost may be recognized over time through depreciation.
Owner withdrawals reduce cash. A draw is not normally shown as a business expense.
What to do this month
- Review unpaid invoices and their due dates.
- Compare your profit-and-loss statement with your cash flow report.
- List debt principal, equipment purchases, and owner draws separately.
When you review profit and cash together, the difference usually becomes much easier to explain.