Profit and cash measure different things. Profit is the revenue earned less the expenses incurred in a period. The bank balance is the cash in an account on one day. Over time they move together, but in any one month they can drift apart for ordinary reasons.
A worked example (fictional)
Harbor Design LLC, an invented business on accrual books, shows a September profit of $6,000. Its bank balance went from $8,000 to $7,500, down $500. The bridge:
| From profit to cash, September | Amount |
|---|---|
| Net profit | $6,000 |
| Add depreciation (an expense with no cash payment) | +$500 |
| Less customer invoices billed but not yet paid | −$4,000 |
| Add bills recorded but not yet paid | +$1,500 |
| Less loan principal paid (cash out, not an expense) | −$1,000 |
| Less equipment bought (an asset, not an expense) | −$2,000 |
| Less owner withdrawals (not an expense) | −$1,500 |
| Change in cash | −$500 |
The usual reasons
- Customers pay later than you bill. On accrual books, revenue counts when it's billed; the cash comes when the customer pays.
- You pay bills later than they're recorded. The expense counts when it's incurred; the cash leaves later.
- Loan principal. The interest is an expense; the principal reduces the loan, so it lowers cash without lowering profit.
- Equipment and other assets. A large purchase is recorded as an asset and expensed over time through depreciation, so cash drops at once and profit drops gradually.
- Owner withdrawals and contributions. Money you take out or put in changes cash but not profit.
- Sales tax collected. It sits in your bank account but is owed to the state.
- Credit-card purchases. The expense counts when you charge it; the cash leaves when you pay the card.
On cash-basis books
If your books are on the cash basis, the first two reasons mostly disappear, because revenue and expenses are recorded when money moves. The rest still separate profit from cash.
When the gap doesn't make sense
If the bridge doesn't close, the cause is usually in the books: an unreconciled account, a bank-feed entry imported twice, or a loan payment recorded entirely as an expense. A reconciliation for the month is the first check. If several months are affected, a bookkeeping cleanup scope can correct them.
What happens next
Use the contact form through the contact form. Don't send statements or account numbers there.
