The difference between cash and profits and effect of transactions on profitability and liquidity
Profit and cash are not the same thing. A business can earn high profits but still run out of cash — and some transactions affect one without affecting the other.
Real World
Eddie Stobart Logistics reported healthy profits in 2019 but faced a cash crisis because large customers were taking 90+ days to pay invoices, forcing the haulage firm into emergency refinancing.
Exam Focus
Use a specific transaction — such as a credit sale or asset purchase — to show the examiner exactly how profit moves one way and cash moves another.
Essay Framework
Use PEEL to structure every paragraph. Tap each step for guidance and an example.
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