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Reading a business

Lesson 77 · Written for kid, teen, and little

Profit vs Cash

A company can earn a profit on paper and still be short of cash.

The idea

Profit is what is left after a company subtracts its costs from its sales on paper. Cash flow is the real money moving in and out of its bank account. The two can be very different, because a company can make a sale today and not get paid for 30 or 60 days. That is why a business can look profitable and still run short of cash to pay its bills, and why investors usually look at both numbers. 💵

A

Words to know

5

Profit

Sales minus costs, worked out on paper. You can show a $10,000 profit and still have an empty bank account.

Cash flow

The real money going in and out of the bank account. A $10,000 customer bill that has not been paid is money owed to the business, not cash received. Profit also depends on the costs of making that sale.

Revenue

All the money brought in from selling things, before costs. 500 orders at $40 is $20,000 of revenue.

Expense

Money a company spends to keep the business running. Rent, wages and electricity are all expenses.

Invoice

A bill you send a customer asking them to pay you later. Often it says something like 'due in 30 days'.

Try it — no accountSort into groups

Cash flow just means money moving in or out of the bank account.

Sort each event into Cash in or Cash out.

0 / 6 sorted

In the full lesson

  1. 1Sort into groups
  2. 2Put it in order
  3. 3Make the call

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