Explain the distinction between profits and cash flow. What will be a

Explain the distinction between profits and cash flow.

What will be an ideal response?

ANSWER

Answer: Profits are an accounting measure of performance during a specific period of time. Cash flow is the actual inflow or outflow of money. Although you cannot spend “profit,” you can spend cash. This is because profit given on the accounting statement does not account for all cash flows. For example, depreciation is considered a cost (and is entered in the income statement), but it does not lower the cash flow that is available to owners.