Short definitions – Profit and Loss, Balance sheet and Cash flow

Accounting definition

I’ll try to explain things that took me ages to understand in one line (almost). I hope it will help you avoid my frustration.

Accounting definition

Accounting definition
Copyright: dolgachov / 123RF Stock Photo

For those 3 definitions the scenario is: someone with a salary as the only source of income (like me)

Profit and loss of 1 year: over the year, the sum of all your salaries (profit) and the sum of all the receipts for the stuff bought during that year, like food, clothes, etc… (loss).

Balance sheet: If today you were to sell ALL your stuff (car, furniture, books,…), transform everything into cash and repay ALL your debt/credit what would you have left? This is what is shown on a balance sheet.

Cash flow: where is the cash coming in and out from? Salary is IN; buying, paying mortgage is OUT. Things bought on credit are not included until you actually have the cash leaving your bank account.

a bientôt



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