- Earnings exceed Cashflows when income is recognized early or cash collection is delayed.
| Situation | Which Is Greater? | Reason |
|---|---|---|
| Credit sales | Earnings > Cash flow | Revenue before cash |
| Increase in Receivables | Earnings > Cash flow | Cash not collected |
| Revenue Recognition from Prior Advances | Earnings > Cash flow | No new cash |
- Cashflows exceed Earnings when cash is received early or expenses are non-cash/delayed.
| Situation | Which Is Greater? | Reason |
|---|---|---|
| Depreciation | Cash flow > Earnings | Non-cash Expense |
| Unearned Revenue Received | Cash flow > Earnings | Cash before revenue |
| Increase in Payables | Cash flow > Earnings | Payment Delayed |
| Prepaid Expense Amortised | Cash flow > Earnings | Expense without cash |