- accruals give an easier question to the question how much profit one makes
- does not give any statement about cash flow
Example - Shoes
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purchase shoes at 10$ (cash)
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sell shoes at 15$ (cash)
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operating cash flow: 5$ (15 - 10)
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profit: 5$ (15 - 10)
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purchase shoes at 10$ (later)
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sell shoes at 15$ (cash)
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operating cash flow: 15$ (15 - 0)
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profit: 5$ (15 - 10)
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purchase shoes at 10$ (cash)
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sell shoes at 15$ (later)
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operating cash flow: -10$ (0 - 10)
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profit: 5$ (15 - 10)
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purchase shoes at 10$ (later)
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sell shoes at 15$ (later)
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operating cash flow: 0$ (0 - 0)
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profit: 5$ (15 - 10)
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profit is not changed by paying later, only cash flow is changing