How can the business make a profit but have an over draft?
submitted by matobetobe

benny

Profit is unrelated to how a business handles its checking account. Let's say a business made $100,000, and put all but $5,000 in a savings account. Then the business overdraws the checking account. They still made a profit, but they mishandled their checking account.

cornelius III

Sometimes a company shows a profit in their books because of sales made on credit, but they actually don't have enough cash in the bank. So, they can be profitable but still go into overdraft because they haven't been paid yet.

integrityfailed

Even if a business is making a profit on paper, it can still have an overdraft if its cash inflows and outflows don't align.

Profits are based on accrual accounting, which recognizes revenue and expenses when incurred, not necessarily when cash is received or paid. So, the business might have earned revenue but hasn't yet collected the cash, or it might have paid expenses that haven't been reflected in the profit calculation. That could make an overdraft, despite their being profitable.