In this article
Key takeaways
- Show a numerical bridge from profit to the change in cash.
- Separate business performance, investment and financing.
- State which adjustments are missing from a provisional result.
- Reconcile the final figure to the bank, then discuss future liquidity.
Set the assumptions before calculating
A small service company starts the month with €30,000 in the bank and €30,000 equity. It has no other opening assets, debts or open invoices.
During the month it earns €18,000 from services already delivered. Customers pay €11,000; €7,000 remains unpaid. Operating expenses of €9,000 are incurred and fully paid. The company buys equipment for €4,000 cash and receives a new €10,000 loan.
This is an accrual-accounting teaching example. VAT, tax and depreciation are excluded. The equipment is assumed to require capitalisation. The €9,000 result below is therefore profit before depreciation and tax, not the final statutory result.
Calculate the result and bank separately
The simplified result is:
€18,000 revenue − €9,000 operating expenses = €9,000 profit.
The bank calculation includes the actual customer receipts:
| Bank movement | Amount |
|---|---|
| Opening balance | €30,000 |
| Customer receipts | +€11,000 |
| Operating payments | −€9,000 |
| Equipment purchase | −€4,000 |
| Loan received | +€10,000 |
| Closing balance | €38,000 |
The €7,000 of unpaid revenue never entered the bank during this month. The €10,000 loan did enter the bank, but did not increase revenue.
Build the bridge clients can follow
| From the result to cash | Amount |
|---|---|
| Profit before depreciation and tax | €9,000 |
| Increase in unpaid customer invoices | −€7,000 |
| Equipment paid for | −€4,000 |
| New borrowing | +€10,000 |
| Increase in bank balance | €8,000 |
A concise explanation is: “The company earned €9,000 before depreciation and tax. Customers still owe €7,000, and €4,000 went into equipment. The new loan added €10,000. That leaves €8,000 more cash than at the start.”
This also separates operating cash generation from financing. In the example, customer receipts of €11,000 less operating payments of €9,000 produce €2,000. After the equipment purchase, cash would fall by €2,000 without the loan. A rising bank balance alone would hide that distinction.
Check the balance sheet as a second proof
Closing assets total €49,000:
- Bank: €38,000.
- Customer receivables: €7,000.
- Equipment before depreciation: €4,000.
The other side is the €10,000 loan plus €39,000 equity: €30,000 opening equity and the simplified €9,000 profit. Both sides total €49,000.
This is a useful error check. If the cash bridge and balance sheet disagree, look for an omitted movement, an opening balance assumption or an adjustment included in only one calculation.
Adapt the bridge to a real month
Real clients need additional lines where relevant:
| Situation | Effect on the bridge |
|---|---|
| Supplier invoices incurred but unpaid | Add the increase in payables when starting from profit |
| Depreciation included in profit | Add it back as a non-cash expense |
| Old supplier balances paid | Deduct the reduction in payables |
| Loan principal repaid | Show financing cash outflow; distinguish interest expense |
| Owner or shareholder transactions | Identify their actual legal and accounting nature |
Do not use “drawings” as a universal explanation for a GmbH shareholder payment. A repayment, salary, distribution and shareholder receivable are different matters.
The principle that expenses and income in accrual accounts are recognised independently of payment is set out in §252 HGB. An EÜR needs a different starting analysis.
Turn the explanation into a cash forecast
Ask when the €7,000 receivables are expected to arrive, whether any are disputed, and which payments fall due before then. The historical bridge explains the month; a dated cash forecast answers whether the company can meet next month’s obligations.
Bring the open-item list and the bank reconciliation to that conversation. Together they turn an abstract difference into identifiable invoices and payment dates.
Sources
Sources were checked on 06 October 2026. This article provides orientation and is not tax, legal, or accounting advice.
- German Commercial Code section 242 – balance sheet and profit and loss account
- German Commercial Code section 266 – balance-sheet structure
- German Commercial Code section 275 – profit-and-loss structure
- Published