Educational material from 
What you will learn
- Distinguish recognised revenue from the customer’s payment.
- Calculate both profit and the cash movement in two periods.
- Explain why a receivable is not money in the bank.
January: the sale exists, but the payment is missing
A fictional service business starts January with SEK 20,000 in the bank. A completed service is recognised as January revenue of SEK 10,000, but the customer will pay in February. The business also has SEK 6,000 of January expenses, paid immediately. Every amount in this model excludes VAT.
January’s profit is 10,000 − 6,000 = SEK 4,000. No customer payment has arrived, so cash flow is 0 − 6,000 = −SEK 6,000. The bank balance ends at SEK 14,000. The unpaid invoice is a receivable of SEK 10,000, rather than an additional deposit in the bank account.
If the table does not fit, scroll it sideways.
| January | Amount |
|---|---|
| Recognised revenue | SEK 10,000 |
| Period expenses, paid | SEK 6,000 |
| Profit | SEK 4,000 |
| Cash flow | −SEK 6,000 |
| Cash at month-end | SEK 14,000 |
| Unpaid receivable | SEK 10,000 |
February: cash arrives without counting revenue again
In February the customer pays the entire SEK 10,000 invoice. We assume there are no new services sold, no new expenses and no other payments. February therefore has SEK 0 of profit from this model but +SEK 10,000 of cash flow. The bank balance increases from SEK 14,000 to SEK 24,000.
The receivable simultaneously falls from SEK 10,000 to SEK 0. The customer has paid for a sale already recognised. Adding another SEK 10,000 of February revenue would double-count the service’s sale. January and February together have SEK 4,000 of profit and the same SEK 4,000 change in cash.
If the table does not fit, scroll it sideways.
| Period | Profit | Cash flow |
|---|---|---|
| January | SEK 4,000 | −SEK 6,000 |
| February | SEK 0 | SEK 10,000 |
| Both months together | SEK 4,000 | SEK 4,000 |
Check the bridge between profit and cash
For January alone, you can start with the SEK 4,000 profit and subtract the SEK 10,000 increase in receivables. That leaves −SEK 6,000, matching the cash flow calculated from actual payments. February’s corresponding check is 0 + 10,000 = SEK 10,000 as the receivable is settled.
This is a small explanatory model rather than a complete cash-flow statement. Depreciation, payables, investments, borrowing and other events are absent. A real statement also separates cash flows from operations, investing and financing. Money arriving through a new loan, for example, is not the same as customers paying for additional sales.
Record the period and assumptions when reading a company
Our service is assumed to meet the conditions for recognising revenue in January, and the customer is assumed to pay in full in February. Actual unpaid receivables may require other judgements. You therefore need the report’s definitions and notes before interpreting differences between earnings and money.
Start by checking the right company with Investiq’s company-search guide. Then read its own report and record the period, profit measure and cash-flow category. This table is a manual calculation exercise; it does not claim the app offers a complete cash-flow analysis. Continue to the balance-sheet lesson to see where the receivable belongs.
Try it yourself
A separate model has SEK 8,000 of recognised revenue and SEK 5,000 of expenses, all paid. Customers have paid SEK 6,000 and still owe SEK 2,000. Starting cash is SEK 10,000. What are profit, cash flow and ending cash?
Show the solution and explanation
Profit is SEK 3,000, cash flow is +SEK 1,000 and ending cash is SEK 11,000.
Profit: 8,000 − 5,000 = 3,000. Payments: 6,000 − 5,000 = 1,000. Cash: 10,000 + 1,000 = 11,000. The SEK 2,000 difference is the unpaid receivable in this model.
Check your understanding
Does February’s payment create a new sale of January’s service?
No. The customer settles a sale already recognised.
Does a positive profit prove cash increased in the same month?
No. Revenue, expenses and actual payments can fall at different times.
Practise with virtual money
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More lessons on this topic
Read company statements
Sources and examples
- SEC: cash-flow statements and the difference between earnings and payments
- SEC: assets, liabilities, equity and receivables
The sources support the factual explanations. Calculations and exercises were created for this lesson. Amounts and price changes are invented unless stated otherwise.
This material is educational and does not recommend securities to buy. A simulated result does not guarantee a future result.
