What is the difference between Net Profit and Net Cash flow?

I can't get my head around the difference between accural accounting and cash accounting, how would you explain it?

What is the difference between Net Profit and Net Cash flow?
In cash accounting, revenue is recognized when cash is received and expenses recognized when paid out. In accrual accounting, revenue is recognized when earned, whether or not payment has been received. Also expenses are recognized when they occur, not necessarily when paid out. For example, you own a store and sale an item for today on account. Under cash accounting, you would not record the sale until your customer paid you. In accrual accounting, you book an entry for sales and offset to accounts receivables. On the expense side, in cash accounting for example, say you go buy office supplies and charge it . You would recognize the expense when you paid for them, after a bill came in. In accrual accounting, you would recognize the expense at the time you made your order, with an offset to accounts payable. Also, in accrual accounting, there are non-cash expenses such as depreciation where no cash is outlaid but the expense is shown with a corresponding decress in assets.





Net Profit is simply the result of revenues minus expenses. Net Cash Flow is the result of inflow of receipts minus outflow of payments.
Reply:You are talking three different things.


Cash accounting isn't cash flow. In cash accounting you still have depreciation and amortization so you aren't simply looking at cash.





The main differences between accrual and cash is inventory, AR and AP.


In a cash accounting system if you buy inventory it is an expense and when you buy on credit it is only and expense when you pay for it. When you sell on credit the sale isn't recorded until you collect the money.


Cash accounting works best when you don't have inventory and you don't sell on account. An example might be a day care center, you are selling a service and expect to get paid soon after the service is done. So what money comes in is about the same month to month and you just look to cash receipts to record the sales.


An accrued business records purchase and sales as they happen if money changes hands or not. Say you were selling cars and you ordered 100 cars from the factory but don't send them money yet. You would increase inventory and accounts payable. When you sold the cars you would decrease inventory and record a receivable from the customer. You would record the sale the same if they charged it or paid for it.


We repair ships, one customer might give us more than a million dollars for a repair. First we have to pay for labor and materials and we record that as a cost of the job even if we didn't pay for all the materials yet. The job cost is an asset since we have to gather the cost until the job is done, which could be next year. Then when we are done we send them a final bill and record the sale. They pay have paid progress billings and the final bill may not be paid yet but we record the entire sale the day we bill it. That same day we make the asset of accumulated cost become an expense to match the cost to the sale. On a cash system we might have had a million dollar loss the first year and million dollar profit the next because we recorded only when cash changed hands.