courses › Accounting

Why a profitable month can still leave the bank account short.

In your head, jot if needed · no calculator why?

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Opens at level 16.

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Builds on: Cash In Is Not Always Revenue (not open yet) · Reading a P&L (not open yet)

skills · practice stats

From rounds of this course only: box, review and trial answers are left out. Once a skill has 40 tries, it compares your first 20 tries with your last 20.

• This month's cash change par 22 s not tried yet

  worked example

  A completed job earns $4,000. Its $2,000 expense is paid now, but the customer pays next month. With no other transactions, what is this month's cash change? (Use a minus sign for a decrease.)

  Answer: -$2,000.00

  1. Cash only moves when money moves: $0 in − $2,000 out = −$2,000.
  2. This month's accrual profit is still $4,000 − $2,000 = $2,000.

• This month's accrual profit par 23 s not tried yet

  worked example

  This month you finish $7,500 of work (the customer pays in 30 days), a customer prepays $1,000 for work you'll do next month, the bank lends you $16,500, and you pay $2,000 of this month's expenses. What is this month's accrual profit? (Use a minus sign for a loss.)

  Answer: $5,500.00

  1. Accrual profit counts revenue when it's earned: $7,500 earned − $2,000 of expenses = $5,500.
  2. The prepayment is work you owe (a liability) until next month.
  3. The loan is a debt, not revenue.

• Interest or principal? par 10 s not tried yet

  worked example

  Of a $1,150 loan payment, $510 is interest. How much reduces the loan principal?

  Answer: $640.00

  1. Principal = payment − interest = $1,150 − $510 = $640.
  2. Only the interest is an expense; the principal part just shrinks the debt. Cash still falls by the full $1,150.

• Cash tied up by slower collections par 15 s not tried yet

  worked example

  Sales average $1,700 a day, all on credit. Customers now pay 15 days later than before. All else equal, how much extra cash is tied up in receivables?

  Answer: $25,500.00

  1. Each extra day of waiting holds back one more day of sales: $1,700 × 15 = $25,500.
  2. It's a rough steady-state figure, not a full forecast.

• Cash out, but not an expense par 15 s not tried yet

  worked example

  For a food truck, which of these reduces profit this month but uses no cash this month?

  1. Paying $2,000 of this month's rent
  2. Paying the owner a $1,000 distribution
  3. Recording $250 of depreciation on equipment
  4. Paying a $550 supplier bill that was recorded as an expense last month

  Answer: Recording $250 of depreciation on equipment

  1. Depreciation spreads the cost of equipment bought earlier. It lowers profit now, but no cash moves.
  2. The other choices all use cash this month.

rest ladder

Win 3 of your last 4 rounds and the course rests. A win is 90% right, within 2× the round's par. Pass the review when it comes back and the next rest is longer.

1. 1 day
2. 3 days
3. 7 days
4. 14 days
5. 30 days
6. 60 days
7. mastered · every 90 days

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