it is possible for a hospitality operations at a profit during any given month but simultaneosly have insufficient cash flow during that same month

Question

Amiyah

Business

21 November, 00:23

it is possible for a hospitality operations at a profit during any given month but simultaneosly have insufficient cash flow during that same month

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Answers (1)

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Onyx · Answer 1

True

Explanation:

Cash flow is a measure of the available cash and cash equivalent for operation in a business year. It has to be positive to generate value for investors and also to remain in business.

Profit is defined as the excess of income over expenses.

We need to know that profit are calculated on accrual basis, which means that income are recorded when earned and expenses recorded when incurred. In a situation where most sales are on account, i. e no instant cash payment and most expenses are on cash basis, this could cause a deficit in the cash flow volume. The level of inventory held could also lead to a negative cash flow despite a profitable operation if it is too high.