Archive for December, 2009

Accounting 101: Cash and Profits are NOT the same!

December 22, 2009

Profitability versus positive cash flows – Profitability compares income earned to expenses incurred while Cash flow measures cash received with cash paid out

You can be profitable but have no cash

  • you are spending cash on assets that depreciate over time,
  • you are making loan payments, and/ or
  • your customers are not paying you timely and

You can have cash without the profits

  • you borrowed money,
  • you are slow paying some bills and/or
  • you collect up front deposits
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Accounting 101: Gross Margin Analysis

December 18, 2009

If your gross margin were to decrease one month, that would mean your cost of goods sold increased in relation to your sales… you want to find out why – you cannot fix a problem if you do not know why it occurred – you could end up making it worse by fixing the wrong problem

  • Sold less, so you could not take advantage of volume discounts from supplier
  • Sold more, but supplier cost increased
  • Sold at a discount, without a discount on purchase