Business FinancesQuestion 1133 of 1605
Why can a contractor be profitable on paper yet still run out of cash?
a.Because profit is measured over time while cash must be available now to pay current bills
b.Because profit and cash are always identical
c.Because sales tax is refundable
d.Because overhead is not a real cost
Explanation
Accrual profit records revenue when earned, but cash to pay wages, suppliers, and taxes is needed immediately. Money tied up in receivables, retention, and work-in-progress means a profitable business can still face a cash shortage.
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Reviewed by Abraham Chen — Licensed California General Contractor (CSLB License #1101856 — verify)