So, you’re playing a game of hide and seek with your hard-earned money – peeking at the Profit and Loss Statement one minute, then your bank balance the next, and scratching your head in confusion. You thought the business was turning a profit, but your bank account doesn’t show it. And to add insult to injury, you have to pay taxes!

Let’s look into this further.

Profit vs cash

Profit and your bank balance aren’t joined at the hip. Sure, the business generates income and there are business expenses to pay out. But there are other transactions in play that can make the cash in your account go where you can’t find it easily.

Let’s take a look at some of the transactions that are mucking up the money trail:

Personal transactions 

Personal transactions aren’t business expenses. Therefore, your bank balance is decreasing but there’s no impact on profit.

  • Transferring regular amounts to your personal account to cover living expenses.
  • Taking one-off large amounts for personal items – for example, a vehicle or property deposit.
  • You may have paid personal tax to the IRD from the business’ bank account – again, the bank balance decreases but profit doesn’t. 
  • Personal money you deposit into the business’ bank account isn’t income and therefore not part of profit – but it does increase your bank balance.

Business transactions

  • Your sales are taxable income in the Profit and Loss account. However, if your debtors haven’t paid, the money isn’t there (yet).
  • Perhaps you purchased a lot of supplies just before the tax year end. These will appear as expenses in the Profit and Loss account, but your bank account won’t decrease until the suppliers are paid.
  • The purchase of a business asset will lower your bank balance but the purchase price cannot be claimed as a business expense. These assets are depreciated (written off and expensed) over a number of years.
  • Don’t forget Inland Revenue! GST, PAYE, and income tax payments for the business have no impact on profit, but they’ll hit the bank account hard.

Where has the money gone?

Xero Reports provide a wealth of information if you know how to use them smartly. Remember, as with most business applications, the output is only as good as the input. Incorrectly entered transactions can throw you off course.

Cash summary report

Head to the Cash Summary Report, enter the date range and number of months. It’ll show only cash transactions – those which go through your bank account. 

Profit and Loss Account

Most will have this report defaulting to an accruals basis – sales are included once  you send an invoice. 

Did you know you can switch it up to be on a cash basis? When selected, sales only appear when you receive the cash (for example). All you need to do is select the More button towards the top-right of the page, then Cash. Don’t forget to click on Update! The cash-basis Profit and Loss Report won’t show transactions that affect the balance sheet though, so keep in mind that it doesn’t show all cash transactions.

Xero analytics

Have you heard about the Analytics section of Xero? You’ll find it within the  Business tab. The Business Snapshot is probably the most useful of the two and includes graphics for those who are more visual and don’t necessarily like looking at rows of numbers.


If your bank balance isn’t what you expect, consider getting in touch for a chat and consider preparing a cash flow forecast Just undertaking this process will give you great insights as to where how your profit has been spent.


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