A company sends an invoice of € 250 to his client for goods supplied.
How does this impact profit and cash?
The correct answer
The word ‘sales’ is often misunderstood. You sell when you send an invoice to the client for goods or services delivered. When the client actually pays is not relevant. Your profit increases when you send the invoice, your cash increases only when the client actually pays the bill.
Naturally, a sale also incurs a cost. You need to buy products. There are wages to pay, electricity bills, etc.
When sales are higher than the costs incurred, the sale is profitable. If this is not the case, sadly you sold at a loss.