Answer the following statements true (T) or false (F)

Question

1. There are profitable businesses which end up in bankruptcy.
2. Profit and cash flow are the same in accounting.
3. At the beginning, you should be willing to give credit to any client as you are just starting out.
4. Invoicing the customer should be made only when the customer confirms the receipt of the product.
5. The cash flow cycle describes the various activities undertaken by a venture to produce cash inflow.

Answer 1

1.True – A profitable business on paper can end up in bankruptcy if the cash coming in does not exceed the cash going out of the venture.
2.False – While profit is a result of our accounting practices (revenues minus expenses), invoicing a customer for a product/service creates revenues but not necessarily cash inflow. The cash flow only happens once the money is collected from the customer.
3.False – Your goal is to get paid. In doubt, request either 100% payment before or at the time of delivery or an upfront payment that covers the order’s costs of goods sold (COGS) with the balance of the invoice due upon delivery.
4.False – Send invoices to customers as soon as the goods or services are shipped or delivered. Do not wait or postpone this important task.
5.True – It reveals how a venture transforms cash today into cash in the future. The ultimate goal is converting as little cash today into the largest cash payoff possible in the future.