Profit Or Cash In Financial Statement Perspectives (We Need Both Of Them)


Profit Or Cash In Financial Statement Perspectives (We Need Both Of Them)

People often misunderstand about profit. They think that the cash generated from their business is equal to the profit shown in the Income Statement. There are several reasons you need to know, such as:

  • The cash coming from the loans or from investors as shown in the Cash Flow Statement will not appear in the Income Statement at all.

  • The revenue shown in the Income Statement are of Cash Sales and Credit sales

  • Expenses are matched with Revenue in Income Statement.  Like revenue, expenses recorded in Income Statements are not only the cash expenditures. In Income Statement the expenses incurred may not be the ones that were actually paid during the given period. Remember besides cash paid for the bills in the given period, some may have been paid earlier.  Some others will be paid later when invoices come due. It is clear that the expenses recorded in the Income Statement are not equal to the cash going out at the given period.

  • Capital expenditures do not count against profit.

Capital expenditure does not appear on the income Statement when it occurs. It is shown in the Statement of Financial Position. Only the depreciation is charged against revenue. The purchase price of fixed assets, such as machinery, computers, and so on, are shown gradually in the Income Statement through the mechanism called depreciation, over the useful life of each item.  On the other hand, cash has another story. Some of the assets acquired may have been paid long before they have been fully depreciated, and the cash used to pay them will be recorded in the cash flow statement.

Based on the above explanation, no wonder if one day you may find that there are two disparity conditions, Profit without Cash and Cash without Profit.  If you just need cash information, you can see the Cash Book or the Statement of Cash Flows. But, if you need to see the costs that matched with the revenue at the given period, you need to read the Income Statement.  Without Income Statement and Statement of Financial Position, it is impossible to make good company decisions. Both of these financial statements results in the whole picture of company in terms of financial position (assets, liabilities and capital) and profit or loss suffered by a company.

The Statement of Cash Flows is also obligatory for the companies subject to  IFRS/ SAK and SAK ETAP in Indonesia.  It reflects a reconciliation between net income and net cash flow from operations and explain the changes in cash and cash-equivalents for the period. In Indonesia, the Statement of Cash Flows is not necessary for businesses which are subject to SAK EMKM (effective from 2018 and addressed to businesses which are not able to adopt the accounting principles as stated in SAK ETAP).


Kontributor Artikel Oleh : KJA Adriansyah, Ak., CA
Hp : 0815 3570 966
Akuntan Partner Zahir

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