Why the net profit is not the same as the bank balance of Accounting Misconception

        The profit in the firm is not the only amount residing in the bank [1]. The profit and loss statement provides information for the income that is generated from the process of the business activities. And the operating expenses are sometimes stationary and included in the total expense. The gross profit is estimated from the total expenses while the net profit includes the loss generated by any sort of trading activities in the firm.

        Consider that business that produces an invoice for the $ 5000 and the recorded business included all the amount in the profit and loss statement. There were no expenses and the net profit is $ 5000. There is no payment received from the invoice and the money is not provided to the business from the bank account. As the income is $ 5000 and the operating expenses are considered as a cost of building rent, motor operation requirements and cost of raw material. The bank account records the payments in the balance sheet. There are two categories of the transactions as mentioned in the profit and loss statement such as money in and money out and the transactions are not mentioned in the bank statement. The actual bank account is not able to reflect the deposit of money $5000 in the bank account [4].

        The trading process in the profit and loss statement provides information about the liabilities, taxes, and business loans. The assets are mentioned in the balance sheet as paid through the bank account. The fundraising activities in the firms generate more surplus and details are not in the bank statement and contributes to the reduction in the amount of cash in the bank. The increase in the bank balance is mainly due to the increase in profit and revenues [3].

            The justification is provided by the statement of bank loans and the increase or decrease of current assets in the bank. The recommendation is provided in the present work about the equal amount provided in the income statement and the bank information. The owner of the firm should invest higher cash in the business and save the profit in both the income statement and bank statement. The liabilities cannot be improved but the liquid ratio can be improved in the firms [3]

Conclusion of Accounting Misconception

The present work includes the factors affecting the validity of income statement, profit, and loss statement and bank statement. The change in the asset value is due to the unpresented reports on the due date. The balance sheet provides more details about the line items and the major categories.    

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