If you produce a profit and loss statement for a accrual based company and it the report show a net loss of 89,000.00... then your boss asks why is there not a -89,000 amount in the bank account ? How to answer in a way he will understand

You could start by explaining that depreciation is a non cash charge, the funds having been spent in another accounting period, that you have yet to pay creditors at year end. You could also explain that the profit and loss statement is intended to show the result when all time related items are brought to account and a cash flow statement also exists which will show the movement in bank accounts

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Originally Posted by paraclete

You could start by explaining that depreciation is a non cash charge, the funds having been spent in another accounting period, that you have yet to pay creditors at year end. You could also explain that the profit and loss statement is intended to show the result when all time related items are brought to account and a cash flow statement also exists which will show the movement in bank accounts

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Thank you so much!!