{
  "question_id": "CG-MCE-105",
  "slug": "why-your-books-show-a-profit-but-your-bank-account-has-no-cash",
  "display_title": "My books show a profit but there's no money in my bank account — where did the cash go?",
  "format": "article-v2",
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      "US"
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  "summary": "Both can be right: profit is income minus expenses over a span; the bank balance is cash at one moment. Withdrawals, loan principal, inventory, fixed assets, prepayments and, on accrual books, unpaid customer invoices leave cash short of profit, while loans, owner money, customer deposits, depreciation and unpaid bills do the reverse. Apply each to the span's profit to reach the change in your books' reconciled bank balance, not the statement's; a remainder signals missing, duplicated or misposted transactions.",
  "body": "## Why can profit and an empty bank account both be right?\n\nThey measure different things. Your profit and loss tells you how far income exceeded expenses over, say, six months. Your bank balance tells you how much cash was in the account on one day.\n\nOn accrual books the two also run on different clocks. AccountingTools' article comparing cash and accrual accounting describes the accrual basis as recording revenues and expenses when they are earned or incurred, regardless of when cash is received or paid.\n\nSo compare like with like: profit for a span against the change in the bank balance over exactly that span. Setting six months' profit against today's balance compares a total with a snapshot, and no trace can close between them. Nor should you edit entries until the two agree: changing correct entries to force a match damages the records you would need to find a real error.\n\n## Which payments leave the bank without reducing profit?\n\nFive kinds of payment take cash without reducing profit when they are made:\n\n- **Owner withdrawals.** AccountingTools' entry on the drawing account says drawings do not affect net income because they are not business expenses. Recording a withdrawal as an expense, so that profit falls toward the bank balance, understates profit and hides the withdrawal from the trace below. The same entry says that in a corporation the drawing account is not used, because owners are paid through wages or dividends. Wages paid to you through payroll are not a withdrawal: ask your accountant how they are recorded.\n- **Loan principal.** Repaying principal lowers the loan balance.\n- **Inventory.** AccountingTools' entry on cost of goods sold says the cost of goods still in stock at the end of a period is not charged to cost of goods sold. Cash leaves when you pay the supplier; profit is charged as the goods sell.\n- **Equipment and other long-lived assets.** AccountingTools' article on how a profitable business can run out of cash explains that more expensive assets are recorded as fixed assets rather than charged to expense when purchased, then depreciated, so a business can pay out large sums and still report a profit. This covers only equipment your books record as fixed assets; a cheaper item charged to expense when bought is already in profit, which is not an error.\n- **Payments made in advance.** A year's insurance paid up front is an example.\n\n## Which deposits raise the bank balance without being income?\n\nThree kinds of deposit raise the balance without being income, so a jump with no matching sale is not in itself an error:\n\n- Loans received\n- Your own money put in\n- Customer deposits, on accrual books\n\n## Which costs cut profit without cash leaving?\n\nTwo kinds of cost work the other way, lowering profit with no payment in the span:\n\n- Depreciation and amortization\n- Costs recorded before they are paid, on accrual books\n\n## How do customer and supplier balances move cash while profit stands still?\n\nOn accrual books, if customers owe you 18,000 more at the end of the span than at the start, 18,000 of your profit has not reached the bank; if they owe you less, collections have released cash. Supplier bills work the other way: paying them down takes cash with no effect on profit.\n\n### What if the business is growing or customers pay slowly?\n\nThen expect the receivables line to be large and to keep taking cash while growth lasts, because each month's new invoices outrun collections on the smaller months before. The same AccountingTools article describes customers given an extended period to pay while powerful suppliers make the business pay before it has received any money from its customers. Building stock for higher sales takes cash the same way. This is an expected pattern, not a sign of error: the gap widens just as the profit figure looks best.\n\n## Does the basis of your books change the gap?\n\nYes, so check the basis before reading any report. AccountingTools' article comparing the two bases says the cash basis records revenues and expenses only when cash is actually received or paid, and that it ignores receivables and payables. On cash books, therefore, the receivables and supplier-bill lines below do not arise and accrued costs are not recorded, a customer's deposit is income when it arrives, and a prepayment is an expense when paid. Keep any line whose account still appears on your cash-basis balance sheet, such as a credit card account. Profit sits much closer to cash, so most of any gap must come from withdrawals, owner money, loans and any equipment or inventory your balance sheet holds as assets. A large cash-basis gap that the lines for every account still on your cash-basis balance sheet cannot explain points to a bookkeeping fault.\n\nIntuit's QuickBooks Desktop help article \"Differentiate Cash and Accrual basis\" (updated 8/4/2026) says summary reports can be on a cash or accrual basis, while detail reports default to accrual when created from the Reports menu. It adds that a report toggled between cash and accrual reverts to the default basis once closed, so check the basis each time you open one. Intuit's \"Run reports in QuickBooks Online\" (updated 8/5/2026) says to configure your default accounting method before running reports. Whatever the software, run every report in the trace on one basis.\n\n## How do you trace your profit to the change in your bank balance?\n\nRun these steps in order:\n\n1. **Reconcile first.** Reconcile every business bank account through the last day of the span; without that, the change you are aiming at is unverified. If any reconciliation in the span was finished with an adjustment, find the transactions behind it first. Performing the reconciliation is its own question.\n2. **Measure the actual change.** For every business bank account, subtract its reconciled balance in your books, the balance sheet figure, at the end of the day before the span from the same figure on its last day, and add the results. Transfers between your own accounts then cancel out. Do not use statement balances. If a business account is missing from the books, include its statement balances anyway.\n3. **Run the reports on one basis.** You need the profit and loss for the span, the balance sheet at the day before the span and at its last day side by side, and the transaction detail for the loan, fixed-asset and owner's equity accounts.\n4. **Work down the lines.** Begin with net income from the profit and loss and apply each line in the table below in order. Every balance sheet account that moved belongs on one line, except the bank accounts and the equity lines holding profit. Put other liabilities, such as credit cards, with costs owed, and other assets, such as a deposit you paid, with prepayments. Leave out entries that close the draw account or profit into capital; they move no cash.\n5. **Compare.** Subtract the actual change from your running total. The difference is the residual.\n\nHere is the trace for a business on the accrual basis whose profit and loss shows 42,000 for January to June while the reconciled bank balances in its books fell from 22,800 to 2,300:\n\n| Line | Where the figure comes from | Amount | Running total |\n|---|---|---|---|\n| Reported profit | Profit and loss for the span | 42,000 | 42,000 |\n| Add depreciation and amortization | Balance sheets: accumulated depreciation up 6,000, equal to the expense when nothing was sold | 6,000 | 48,000 |\n| Less increase in what customers owe | Balance sheets: receivables 14,000 to 32,000 | -18,000 | 30,000 |\n| Less increase in inventory | Balance sheets: inventory 20,000 to 29,000 | -9,000 | 21,000 |\n| Less increase in prepayments | Balance sheets: prepaid accounts 1,000 to 4,000 | -3,000 | 18,000 |\n| Less decrease in supplier bills owed | Balance sheets: payables 11,000 to 7,000 | -4,000 | 14,000 |\n| Add increase in other costs owed | Balance sheets: accrued wages and other unpaid costs 5,000 to 6,500 | 1,500 | 15,500 |\n| Add increase in customer deposits held | Balance sheets: deposits or unearned revenue 2,000 to 4,500 | 2,500 | 18,000 |\n| Less equipment bought | Balance sheets: fixed assets at cost 30,000 to 42,000, each purchase in the account detail | -12,000 | 6,000 |\n| Add new borrowing, less principal repaid | Balance sheets: loan 40,000 to 32,500, with no new borrowing in the detail | -7,500 | -1,500 |\n| Add owner money put in | Owner's equity account detail | 5,000 | 3,500 |\n| Less owner withdrawals | Owner's draw or distributions account detail, every withdrawal in the span | -24,000 | -20,500 |\n| Actual change in the bank | Balance sheets: bank accounts, reconciled, 22,800 to 2,300 | -20,500 | |\n| Residual | Running total less actual change | 0 | |\n\nTaking depreciation and equipment from the two balance sheets, rather than from the expense line and a list of purchases, keeps the trace closing even if you sold an asset during the span. Take both owner lines from the account detail, adding every withdrawal in the span however irregular, never from memory; none of them appears on the profit and loss.\n\nKept on the cash basis, with equipment and inventory still held as assets, the same business would report a profit of 21,000: the 18,000 increase in what customers owe would not yet be income, the 2,500 increase in deposits held would be, the 3,000 increase in prepayments and the extra 4,000 paid on supplier bills for running costs (not stock) would already be expenses, and the 1,500 increase in unpaid costs would not. From 21,000, the depreciation, inventory, equipment, loan and owner lines reach the same -20,500.\n\nA statement of cash flows presents a formal version of this bridge; producing and reading one is a separate question.\n\n## What does it mean when the trace will not close?\n\nUnless the actual change came from bank statement balances, a residual means the books do not yet describe what happened. When every balance sheet account that moved, other than bank accounts and equity holding profit, is on a line, double-entry books carry profit to the change in their own cash balance, so each residual has a cause you can find.\n\n| What you find | What to look for |\n|---|---|\n| A bank account was not reconciled | Transactions missing from the books, entered twice or entered at the wrong amount |\n| A business bank account is left out of the books | Activity never recorded |\n| An account that fits no line moved, such as an uncategorized, suspense or clearing account | Transactions parked there and never classified |\n| A line was estimated rather than taken from a report, or the reports mix bases | The line to rerun from its report, on one basis |\n| The trace closes, but income includes transfers from your own accounts, loan money or money you put in | Deposits posted as sales, which overstate profit |\n| The trace closes, but withdrawals (not payroll wages), loan principal or equipment your books normally record as fixed assets sits among expenses | Payments posted as costs, which understate profit |\n| The trace closes, but a reconciliation adjustment or discrepancy amount sits in income, expenses or equity | Missing, duplicated or wrong-amount transactions the adjustment covered |\n\nIntuit's QuickBooks Online help article \"Fix issues at the end of a reconciliation\" (updated 8/25/2026) lists missing or duplicate transactions among the causes of a reconciliation that will not balance. Correct each transaction you find rather than posting a balancing entry to make the residual disappear, then rerun the trace. Recording withdrawals and owner money correctly, and splitting a loan payment, are covered in separate questions.\n\n## What can you change once the gap is explained?\n\nA closed trace turns the gap into named movements, each either a decision you can make differently or a commitment already made.\n\n| Use of cash | Decision or commitment |\n|---|---|\n| Owner withdrawals | A decision: the size and timing of withdrawals |\n| Loan principal | A commitment for the fixed payments the loan agreement requires: AccountingTools' entry on committed costs covers obligations the business cannot get out of, with a loan agreement requiring monthly payments as its example. Principal paid beyond that was a decision; the loan account detail shows it |\n| Equipment | A decision until you commit: AccountingTools' entry on discretionary costs includes capital expenditures that can be curtailed in the short term |\n| Inventory | A decision: AccountingTools' article on running out of cash warns of tying up too much cash in stock bought for volume discounts |\n| Customers' payment terms | A decision for future sales; invoices already issued are money owed to you |\n| Supplier bills and other costs already owed | A commitment |\n| Payments made in advance | A commitment once paid; how you pay at renewal may be a decision |\n\nStart with the decisions: the size and timing of withdrawals, any extra loan principal, how much stock you carry, when you buy equipment, and the terms you give new customers. Commitments are the fixed part of the picture; working out what cash they leave you over the coming weeks is a separate question.",
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  "related": [
    {
      "question_id": "CG-MCE-106",
      "slug": "how-a-statement-of-cash-flows-is-produced-and-what-it-shows",
      "display_title": "How is a statement of cash flows produced from my books, and what does it show that the profit and loss doesn't?"
    },
    {
      "question_id": "CG-MCE-013",
      "slug": "how-do-i-record-money-i-take-out-of-the-business-for-myself-and-money-i-put-in",
      "display_title": "How do I record money I take out of the business for myself, and money I put in?"
    },
    {
      "question_id": "CG-MCE-081",
      "slug": "my-loan-payment-comes-out-of-the-bank-as-one-number-how-do-i-split-it-between",
      "display_title": "My loan payment comes out of the bank as one number — how do I split it between principal and interest, and where do I get the split?"
    },
    {
      "question_id": "CG-MCE-108",
      "slug": "how-to-forecast-cash-for-the-next-few-weeks-or-months-from-your-books",
      "display_title": "How do I use my books to work out how much cash I'll have over the next few weeks or months?"
    },
    {
      "question_id": "CG-MCE-104",
      "slug": "how-to-read-a-balance-sheet-and-spot-balances-that-signal-bookkeeping-errors",
      "display_title": "How do I read my balance sheet — what does it actually tell me about my business, and which balances on it mean my bookkeeping is wrong?"
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  "datePublished": "2026-09-30T21:19:08Z",
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  "question_text": "My books show a profit but there's no money in my bank account — where did the cash go?",
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  "related_question_ids": [
    "CG-MCE-106",
    "CG-MCE-013",
    "CG-MCE-081",
    "CG-MCE-108",
    "CG-MCE-104"
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