The quick answer
Profit measures income against the relevant costs over a period. Cash flow tracks money coming in and going out. A shop can show a profit while struggling to pay suppliers because customers have not paid or cash is tied up in stock.
Read the sales, stock, customer-dues and supplier-dues records together. A single bank balance cannot tell you whether the business is profitable. Use your accountant’s supported cost and accounting method.
Before you begin
- Sales and relevant cost records for a defined period.
- Customer and supplier balances.
- Actual cash/bank movements, stock purchases and owner transfers.
See how the pieces connect
Sell
Sales create income and possibly credit.
Cost
Match the relevant cost to the goods sold.
Collect
Track when customers actually pay.
Pay
Plan suppliers, expenses and other cash outflows.
Work through the steps
Use the same period
Choose the reporting dates and accounting basis. Do not compare a month’s sales with one day’s cash. Separate opening balances from movements within the period.
Calculate supported profit
Match sales with cost of goods sold and relevant expenses. Buying goods does not always mean their entire cost belongs to this period’s profit if some stock remains unsold. Ask your accountant about valuation and tax treatment.
List actual collections
Separate immediate cash sales from collections on older bills. New credit sales can increase profit without creating cash today. Check customer dues to understand the delay.
List actual outflows
Include supplier payments, expenses, equipment, loan movements and owner transfers separately. Some cash outflows are not ordinary operating expenses, even though they reduce the bank balance.
Explain the gap
Review stock bought but unsold, unpaid customer bills and unpaid supplier purchases. Timing differences matter. Avoid treating every difference between profit and cash as an error.
Plan the next period
Estimate likely collections and committed payments. Keep a reserve appropriate to your business. Improve overdue collections and purchasing decisions using evidence rather than assuming higher sales solve every cash shortage.
A worked example
A profitable credit sale may bring no cash today
Simplified example excluding taxes and other expenses.
| Measure | Amount |
|---|---|
| Credit sale | ₹10,000 |
| Cost of goods sold | ₹7,000 |
| Gross profit | ₹3,000 |
| Customer cash received today | ₹0 |
Gross profit is ₹3,000, but the customer has not yet paid. Supplier settlement can still require cash before that collection arrives.
Common mistakes to avoid
- Calling the entire bank balance profit.
- Treating all inventory purchases as goods sold immediately.
- Ignoring owner and loan movements.
- Assuming a credit sale is a collection.
Questions you might have
Can profit be positive while cash falls?
Yes. Stock investment, delayed customer payments, equipment purchases and repayments can use cash.
Is every receipt sales income?
No. Loans, owner contributions and customer advances need their appropriate classification.
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GST-aware billing and preparation depend on your plan. Review records before filing on the GST portal; Dukanam does not directly submit GST returns, government e-invoices or e-way bills.
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Sources and further reading
Official rules and portal screens can change. Use the linked authority for the current requirements; the figures in our worked examples are illustrative.