“We made MAD 200,000 profit—where is the money?” It may sit in unpaid invoices, stock, equipment, VAT, loan repayment or an owner withdrawal. Profit measures performance under recognition rules; cash measures money movements.
The bridge from profit to cash
- Start with the validated period result.
- Add or remove non-cash income and expense in the right direction.
- Explain customer, stock and supplier movements.
- Separate tax and VAT paid or payable.
- Add fixed-asset purchases and disposals.
- Add borrowing, repayment, capital and distributions.
- Reconcile the change to bank and tills.
1. A sale can precede collection
An issued and recognised invoice may contribute to profit before the customer pays. If receivables rise MAD 80,000, that part of profit has not become cash. Conversely, collecting an old invoice raises the bank without creating a new sale this period.
| Event | Profit | Cash |
|---|---|---|
| Credit sale | Rises under recognition | Later |
| Old customer collection | Not a new sale | Rises |
| Deposit received | Treatment to validate | Rises |
| Bad debt | Expense after validation | No immediate outflow |
Keep sales journal and payment register linked but distinct. Adding them would inflate activity.
2. Stock and suppliers move cash
Buying MAD 150,000 stock consumes cash when paid, while only the portion sold affects period cost under accounting treatment. Supplier credit brings stock before cash outflow. Rising stock or receivables generally absorbs cash; rising operating payables supplies it temporarily.
| Movement | Typical cash effect, all else equal | Question |
|---|---|---|
| Receivables + | Absorbs | Are invoices collectable? |
| Stock + | Absorbs | Growth or dormant? |
| Suppliers + | Temporarily supplies | Agreed term or delay? |
| Customer deposits + | Temporarily supplies | What future obligation? |
“Supplies cash” does not mean “creates profit.” A payable remains due and a deposit may fund work still owed.
3. Investment, financing and tax live elsewhere
A machine causes a large outflow while depreciation reaches profit over periods. A new loan raises bank cash without profit; principal repayment reduces cash without being the same expense as interest. Capital, distributions and owner drawings also explain the gap. Collected VAT may sit in the bank temporarily without belonging to margin.
- List paid fixed assets.
- Bridge non-cash charges such as depreciation.
- Separate new loans.
- Separate principal and interest paid.
- List capital and distributions/drawings.
- Reconcile income tax and VAT.
- Check exchange and bank fees.
- Agree to net cash movement.
Build the bridge from validated accounts. Management explanation does not replace professional entries and classification.
A high bank balance is not automatically distributable
It may include VAT, customer deposits, loans, unpaid suppliers or cycle cash. Validate profit, reserves, obligations and forecast before drawing it.
4. Explain the month on one page
BelloPOS can supply sales, receipts, refunds and stock. Bank and accounting complete customers, suppliers, fixed assets, tax and financing. Present result, WCR, investment, financing and cash movement in one bridge.
- Profit: accounting performance
- WCR: operating timing
- Investment: asset building
- Financing: loans and capital
- Cash: reconciled movement
End with two decisions: one operating and one financial. For example, accelerate invoices over 45 days and delay a non-critical asset instead of merely observing lower cash.
Mistakes to avoid
- Adding invoices and payments.
- Calling all purchased stock an immediate expense.
- Calling a loan revenue.
- Forgetting principal repayment.
- Treating VAT as margin.
- Confusing today’s balance with free cash.
Frequently asked questions
Can a profitable business run out of cash?
Yes, through receivables, stock, investment, repayment and other outflows before collections.
Can a loss-making business have cash?
Yes, after loans, capital, deposits or temporary payables despite a loss.
Why does depreciation create a difference?
It spreads asset cost in the accounts while purchase cash may leave on another date.
Is VAT in the bank available?
It can sit there temporarily, but forecast the validated tax payment and do not confuse it with margin.
Does BelloPOS show profit?
It shows operational indicators from supplied cost data; complete result and its cash bridge require accounting.
What to take away
Profit answers performance and cash answers timing. The bridge between them reveals receivables, stock, suppliers, investment and finance to manage.
Sources
The figures and rules quoted above come from these pages, read on the date given in the article.
Explain the last three months
For each month, assign the profit–cash gap to no more than five headings and reconcile the bank total.
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