Which statement about cash and profit is correct?

Which statement about cash and profit is correct?

• A. Cash is a current asset on the SFP; Profit is the figure on the SPL.
• B. Profit is a current asset on the SFP; Cash is the figure on the SPL.
• C. Cash and profit are identical measures.
• D. Cash flow is unrelated to profit.

Answer: (A)

The important distinction is between cash and profit and where they appear in the financial statements. Cash represents the actual cash held by the business and is shown as a current asset on the balance sheet (the SFP). Profit is the result of revenues minus expenses over a period and is shown on the income statement (the SPL). So the correct statement matches each concept to the correct statement: cash as a current asset on the balance sheet, and profit on the income statement. Cash and profit are not the same thing—profit is an accrual-based measure that can include non-cash items like depreciation, while cash reflects actual cash movements. Cash flow relates to profit but is not identical; cash flow is affected by working capital changes and timing of receipts and payments, so it can differ from profit even though they are related.

The important distinction is between cash and profit and where they appear in the financial statements. Cash represents the actual cash held by the business and is shown as a current asset on the balance sheet (the SFP). Profit is the result of revenues minus expenses over a period and is shown on the income statement (the SPL). So the correct statement matches each concept to the correct statement: cash as a current asset on the balance sheet, and profit on the income statement. Cash and profit are not the same thing—profit is an accrual-based measure that can include non-cash items like depreciation, while cash reflects actual cash movements. Cash flow relates to profit but is not identical; cash flow is affected by working capital changes and timing of receipts and payments, so it can differ from profit even though they are related.