Bill has a small printing business. His accountant, Charles, asked Bill to come to his office to discuss his end of the year financial statements. Charles, knowing that Bill was having a difficult time operating the printing business, showed him his income statement. Revenue is up and so is his profit but cash flow is poor.

Bill exclaimed, "I made a net profit of $80,000 that I have to pay taxes on??? You are kidding right? There is no way!!! I don't have enough money in the bank this week to pay rent. How is this possible?????"

Pretend you are Charles (the accountant) and explain how it is possible for Bill's business to show a net profit with increased revenue but not have much money in the bank. Be very thorough with your answer. This happens quite often with small businesses.