Timing differences

1. Cash flow v income, expenditure and profit.

Cash flow drives profit, but in between cash flow and profit are timing differences:

Cash flow

+/- timing differences

= Profit

An example of a timing difference would be an item of inventory, not yet sold or used, but already paid for.

The cash has flowed out of our bank account.

But the item of inventory remains one of our assets and the related cost is not yet recognised in our expenses.

2. Accounting v tax.

There are also a number of important timing differences between the recognition of expenditure and income for tax purposes, compared with the timing for accounting purposes.

See also

• Cost of debt
• Deferred tax