Revenue and Cash Flow Tell Different Stories
Revenue measures income from business activity under the accounting basis used, while cash flow measures money moving into and out of the business. Borrowing, unpaid invoices, equipment purchases and owner transactions can change cash differently from revenue. The two figures therefore do not necessarily rise or fall together.
A sale and a collection can happen in different months
Under accrual accounting, a completed sale can create revenue before the customer pays. When the customer later pays, cash increases and the receivable decreases without creating that same sale again. Under cash accounting, revenue generally follows receipt, subject to applicable rules. Always confirm the reporting basis before comparing revenue with deposits.
Cash can arrive without being sales revenue
A loan or an owner contribution increases available cash, but does not represent a customer buying your product or service. Similarly, moving money between business accounts changes individual bank balances without creating new revenue for the business. Treating all deposits as sales makes performance appear stronger than the underlying activity supports.
Cash can leave without a matching current expense
Repaying loan principal reduces debt. Purchasing equipment can create an asset, with expense recognition handled under the applicable accounting rules. Owner withdrawals also use cash without being ordinary operating costs. Reading the profit and loss statement with the balance sheet and cash flow information helps distinguish profitable work from cash that is actually available to meet upcoming commitments.