Profit and loss accounts are different from the cash flow statement in that they do not wait for the cash implications of a transaction to be settled before the transaction is recognized. For example, if you make a sale of N100,000 and the customer has received the goods or services but has not yet paid, there is no cash movement.
However, both you and the customer recognize that a sale has been made—indeed, ownership and custody of the goods have been transferred, so the profit and loss account will record this as a credit sale, increasing turnover by N100,000, and to complete the double entry, a receivable is created under that customer's name to signify that they owe you N100,000. This is the accrual basis of accounting, which says that income should be recorded in the period in which it is earned, and expenses should be matched...
