Why can a business recording rising profit see its bank balance fall?

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Question

Why can a business recording rising profit see its bank balance fall?

Accepted Answer

Credit sales are recorded as revenue before the cash arrives — Award 1 mark. A business growing rapidly on credit terms shows rising profit while cash falls. This is the essence of overtrading.

Answer

Banks reduce balances as profit rises

Answer

Credit sales are recorded as revenue before the cash arrives

Answer

Rising profit always triggers higher tax payments immediately

Answer

Profit is calculated after cash movements

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