The timing difference is easier to understand by following one order. Keep the income view and cash view separate before trying to reconcile them.
One fictional order, two calendars
A fictional distributor delivers goods in April and invoices the customer $10,000, payable in May. For this simplified accrual example, assume the April delivery supports recognition of the full sale and its $6,500 cost. The distributor also has $1,500 of April operating expense.
| April income view | Amount |
|---|---|
| Revenue recognized | $10,000 |
| Cost of goods sold | −$6,500 |
| Other operating expense | −$1,500 |
| Simplified operating profit | $2,000 |
Now assume the supplier and operating costs are both paid in April, and the customer pays nothing until May.
| April cash view | Amount |
|---|---|
| Opening cash | $8,000 |
| Customer cash collected | $0 |
| Supplier payment | −$6,500 |
| Other operating payments | −$1,500 |
| Closing cash | $0 |
The profit is positive while the cash balance reaches zero. All figures and recognition assumptions are illustrative. Taxes, financing and other transactions are excluded; an actual order may have a different recognition schedule.
What the unpaid invoice represents
After the April sale, the company has a receivable: an amount expected from the customer. It does not have that $10,000 in its bank account yet. When payment arrives in May, cash rises and the receivable falls. Collecting the invoice is not another $10,000 sale in this accrual example.
If payment arrives late or is not fully collected, both the financing gap and accounting assessment may change. The useful questions are which invoices are outstanding, when collection is realistically expected and what evidence supports those dates.
Different transactions move the views differently
Borrowing creates a cash receipt but is not sales revenue. Repaying loan principal is a cash payment without being the same as an operating expense. Buying equipment can use substantial cash while expense recognition follows a different schedule. Depreciation is an expense without a matching current cash payment.
Those examples explain why profit cannot simply be used as a forecast of the bank balance. A complete cash forecast needs the transactions that matter to that business, even when some are absent from its operating-profit calculation.
Growth can lengthen the financing task
If the distributor takes another similar order before the first customer pays, it may need another supplier payment while its cash is already depleted. More positive-margin orders can therefore increase the amount temporarily financed.
Read working capital to trace inventory, receivables and payables. Use the 13-week forecast to put receipts and payments on actual expected weeks.
Check one real transaction
Choose an order and mark the invoice date, delivery date, expected receipt and supplier-payment date. Write down which revenue and expense recognition rules apply in your records. Then compare cash movements with the bank statement.
If the business uses a different accounting basis, adapt the income view rather than copying this accrual illustration. Keep contribution margin separate as well: it answers how a sale contributes before fixed costs, not when the cash arrives.
Sources and limits
The SEC's guide to financial statements distinguishes income, balance-sheet and cash-flow information. The distributor, order, payment dates and calculations are original fictional HBW examples. This guide does not determine accounting treatment for a real contract.