How can a company make a net profit, Accounting Basics

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How can a company make a net profit

Problem: Your managers showed you the income statement for your company. The income statement shows a net profit margin of 5.4%, yet your manager says the company will need to borrow money to meet their financial obligations.

How is this possible? Please address the following issues in your discussion this week:

1. How can a company make a net profit and still be short of cash?

2. In accrual accounting, we record sales when they occur, not when the cash is collected. How does this affect cash flow?

3. How does the purchase of fixed assets or additional inventory adversely affect cash flow?

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Accounting Basics: How can a company make a net profit

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Accounting Basics: How can a company make a net profit

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