# Profit is not cash: net income vs cash flow > Net income vs cash flow, month by month: how accruals, prepayments, invoices and equipment make the P&L and the bank disagree, and how to get from one to the other. - Course: [Finance for Product People: From Unit Economics to Business Cases](https://productovi.com/courses/finance-for-product.md) - Module: Where did the money go? - Lesson 9/32, ~26 min - Source: https://productovi.com/courses/finance-for-product/profit-is-not-cash ## Which number is lying? **Alex Tutor:** Still on Klasna's product team. Leo has put two numbers side by side, and they tell different stories. **Leo:** Something doesn't add up. In March we made 329,884 UAH of operating profit, and the bank grew by 1.7 million. In May profit was even higher, and the bank shrank. Which number is lying? **Hanna:** Neither. They answer different questions. The P&L asks what we earned. The bank asks what money moved. **Alex Tutor:** The P&L is built on **[accrual accounting](/glossary/fin-accrual-accounting)**: revenue is counted when the lesson is delivered, and a cost when it's incurred, whatever day the money moves. The bank only sees the day the money moves. **Alex Tutor:** So net income vs cash flow is a question of timing. Net income, the profit at the bottom of the P&L, counts what you earned. Cash flow counts only the money that entered or left the bank. We'll start from operating profit here; the logic is the same. > **Three months of Klasna: profit and cash** > > | Month | Operating profit | Families paid | Lessons delivered | Net cash flow | > |---|---|---|---|---| > | March 2026 | 329,884 | 6,279,600 | 4,868,640 | +1,705,570 | > | May 2026 | 591,348 | 4,802,300 | 6,002,880 | −579,217.50 | > | July 2026, forecast | −391,490 | 1,139,320 | 1,627,600 | −867,563 | > > UAH. *Lessons delivered*: what families paid for the lessons that took place that month. > **Exercise:** Use the table. By how much did Klasna's **net cash flow exceed its operating profit in March 2026**? ## Prepaid money comes early **Sofia:** In March families paid 6,279,600, but lessons worth only 4,868,640 happened. The rest is for lessons in April, May, June... **Alex Tutor:** Right. That 1,410,960 is in the bank, but not yet in revenue: it's deferred revenue. The payment provider takes its 2.5% the day the family pays, so 97.5% of it reaches the account. $$ \text{Net cash flow} = \text{Operating profit} + 0.975 \times (\text{Paid} - \text{Delivered}) - \text{Equipment} $$ *Klasna in 2025/26, where tutors, video, salaries, office and marketing are paid in the month they're incurred. Paid: what families paid for packages; Delivered: the price of the lessons that took place.* **Hanna:** May runs the other way. Families had bought their exam packages in spring, and in May they used them. We delivered far more than anyone paid for that month. > **Exercise:** In May 2026 Klasna earned 591,348 UAH of operating profit, yet its bank balance fell by 579,217.50. What explains it? ## Why profit is not cash: four ways they part **Alex Tutor:** Prepayments are one of four ways. **Cash before revenue**: a family prepays a package. **Revenue before cash**: a Teams company pays its invoice two months after the lessons. **Alex Tutor:** **Cost before cash**: a lesson on 28 May is a May cost, but the tutor is paid on 5 June. **Cash before cost**: laptops paid in August reach the P&L over two years, as depreciation. **Sofia:** And each of them can be large or small depending on the month. **Hanna:** Which is why I never answer "how much money do we have" from the P&L. I open the bank. **Alex Tutor:** Hanna's habit as a choice. Which source would you open? > **Exercise:** Leo asks: "How much money can we safely spend in June?" In May Klasna earned 591,348 UAH of operating profit, while its bank balance fell by 579,217.50. Where should the answer come from? > **Exercise:** Match each event to how profit and cash part ways. ## A loss with money coming in **Leo:** Then the opposite must happen too: a month with a loss and more money in the bank? **Hanna:** Last September. Operating loss of 84,037.55 UAH, while the bank grew by 35,154.25. Families were buying autumn packages faster than they used them. **Alex Tutor:** A loss is still a loss: the lessons didn't cover the costs. But the cash buys you time to fix it, as long as you remember it's money you still owe in lessons. > **Exercise:** **True or false:** a month with an operating loss always has a negative net cash flow. **Alex Tutor:** And sometimes both point down at once. Try last December. > **Exercise:** December 2025: operating loss of 41,990.60 UAH (profit −41,990.60), families paid 2,819,050, lessons delivered 3,203,464, no equipment. Use the formula. What was Klasna's **net cash flow** in December? ## From net income to cash flow **Sofia:** So with the formula I can go from any month's profit to its cash, if I know what families paid and what was delivered. **Alex Tutor:** For Klasna this year, yes. Next lesson we'll make it a proper statement that works for any company. Our post on [profit vs cash flow](/blog/profit-vs-cash-flow) walks through a whole year. Try January first. **Hanna:** January: operating profit 49,017.60, families paid 4,230,090, lessons delivered 3,678,336. No equipment bought. > **Exercise:** January 2026: operating profit 49,017.60 UAH, families paid 4,230,090, lessons delivered 3,678,336, no equipment. Use the formula. What was Klasna's **net cash flow** in January? **Alex Tutor:** Now read Hanna’s June forecast the same way. > **Exercise:** Hanna forecasts June 2026: an operating loss of 133,497.60 UAH and a net cash flow of −1,298,704.50. Families are expected to pay 1,460,660 while lessons worth 2,655,744 take place; no equipment is planned. Why is the cash outflow almost ten times the loss? ## Your turn: answer Leo **Leo:** Give me the short version I can repeat to the team: why did a profitable May shrink the bank, and what should we watch instead of just profit? **Alex Tutor:** Use March and May side by side. Name the mechanism, not just the numbers. **Sofia:** Two months, one mechanism, opposite signs. > **Exercise:** Leo asks: "Why did a profitable May shrink the bank, and what should we watch besides profit?" Answer in 3–5 sentences using March and May. > **Key ideas** > > - The P&L uses **accrual accounting**: revenue when delivered, costs when incurred. The bank shows when money moves. > - Four ways they part: cash before revenue (prepaid packages), revenue before cash (invoices paid later), cost before cash (payouts on the next payout date), cash before cost (equipment, depreciated later). > - For Klasna in 2025/26: net cash flow = operating profit + 0.975 × (families paid − lessons delivered) − equipment. > - March: profit 329,884, cash +1,705,570. May: profit 591,348, cash −579,217.50. Same business, opposite signs. > - A profitable month can drain the bank, and a loss-making month can fill it. Watch both. **Alex Tutor:** Next: the cash flow statement, the report that turns this formula into three neat sections. - Previous lesson: [Case: a board report for a new board member](https://productovi.com/courses/finance-for-product/quarter-for-the-board-case.md) - Next lesson: [The cash flow statement and the three financial statements](https://productovi.com/courses/finance-for-product/cash-flow-statement.md) --- Productovi Learning. 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