The following is an excerpt from my new book

“How can you go out of business when you make a profit every year?”

There is a huge difference between accrual and cash accounting. You may be making a profit in the accrual method but no so in the cash accounting method. In accrual accounting, you have accounts receivables and payables. In cash accounting, you don’t have those two accounts. You show no accounts receivable or accounts payable.

So, you could be showing a profit in the accrual method but going broke in the cash method.

It all depends on your ability to collect your accounts receivable. So if a catastrophic event occurs, like a large account doesn’t pay you, or the economy crashes like it did in 1980 and 2008, and you can’t collect on your accounts receivable, you could be toast.

That is how you could go out of business while showing a profit!

Glenn

p.s. You can order my book on Amazon – The First Class Way – by Glenn R. Burkey