Profit differs from cash flow from operations because the revenue recognition and matching processes result in the recognition of revenues and related expenses that are independent of the timing of cash receipts and payments.

Question

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Profit is calculated by subtracting total expenses from total revenue, while cash flow from operations measures the actual movement of cash in and out of a business during a specific period. Revenues and related expenses are recognized in the income statement regardless of whether any cash has been received or paid out. Therefore, profit can be earned without any cash flowing in or out of a business.

Profit Differs from Cash Flow from Operations Because the Revenue