However, the net income or loss shown on the profit and loss statement does affect cash flow indirectly. Net income is the profit or loss remaining after deducting all expenses from revenues. When a business generates a net income, it may have more cash available to invest back into the business or distribute as dividends to shareholders. On the other hand, if the business generates a net loss, it may have less cash available to invest and may need to raise additional funds to cover its expenses.
The P& L is not the best tool to assess or track cash flow
Additionally, some expenses listed on the profit and loss statement may not have an immediate impact on cash flow. For example, depreciation expense is a non-cash expense that reduces the value of an asset over its useful life. While it reduces net income, it does not require a cash outflow, as the asset has already been paid for.
In summary, while a profit and loss statement does not directly impact cash flow, the net income or loss it shows can indirectly affect the availability of cash for a business to invest or distribute to shareholders.
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