Profit and loan repayments need a cash reconciliation

The profit report and bank balance disagree

A hypothetical business reports $12,000 profit for the month but makes $16,000 in loan repayments. The owner concludes the accounts must be wrong. Start with an accountant-led reconciliation. Profit and cash movements are different views of the business, and the full repayment may not appear as a single expense in the profit report. The difference needs explanation before a decision follows.

Get the repayment breakdown

Obtain the lender statements and current repayment schedule. Ask the accountant to identify principal, interest, fees and any other relevant components and how they appear in the records. Do not adjust the ledger yourself to force the bank movement into one expense line. Keep the explanation linked to the actual facility rather than applying a rule from a different loan.

Prepare the cash view as well

business.gov.au's cash-flow statement guidance tracks incoming and outgoing money to help plan payments. Put the full cash repayments on the appropriate dates in that view, alongside ordinary operating payments. Check whether the accountant has already included them elsewhere to avoid double counting. The forecast should show what leaves the bank, while the accounts retain their correct treatment.

Source: business.gov.au: Set up a cash flow statement

Explain other movements in the month

Identify customer receipts relating to earlier sales, unpaid current invoices, asset purchases and other significant cash movements. Keep the reconciliation focused on supported figures. In the hypothetical example, the $4,000 difference between profit and repayments is not by itself the complete cash shortfall; other timing movements could make the actual bank position better or worse.

Assess the ongoing capacity with advice

Review several relevant periods and the forward repayment schedule with the accountant. Ask whether current trading can support the commitments and what assumptions the answer depends on. If the company may be unable to pay debts when due, obtain appropriate insolvency advice promptly. Do not assume a positive profit figure proves there is enough cash for every repayment.

Use both reports for the next decision

Keep the profit report, cash forecast and lender schedule together with the reconciliation. CRP can help organise the commercial discussion. The useful result is a shared understanding of earnings, debt reduction and cash timing, so the business can assess repayment pressure without treating two different reports as though one must automatically be incorrect.