The following are balances extracted from the Statements of Financial Position of Bland Ltd:

	30-Jun-22	30-Jun-21
	$	$
Accounts receivable	56,000	120,000
Inventory	190,000	76,000
Prepaid advertising expense	14,000	10,000
Plant and equipment	360,000	280,000
Accumulated depreciation – P&E	142,000	74,000
Accounts payable	28,000	84,000
Accrued expenses	34,000	58,000
Bank loan	100,000	80,000

Additional information:

• Credit sales were $992,000 and the gross profit earned on this amount was $236,000.
• Advertising expense was $10,000.
• Depreciation expense for the period was $68,000.
• Other operating expenses (excluding depreciation and income tax) for the period were $44,000.
• The company paid income tax of $32,000.
• The company used cash to acquire additional plant and equipment. There were no disposals.
• $60,000 of the bank loan from the previous financial year was paid, and a second bank loan was obtained.
• The company’s share capital as at 30 June 2022 was $120,000, whereas it was $96,000 as at 30 June 2021.
• The company paid dividends of $48,000 to the shareholders.
• Cash balance as at 30 June 2021 was $42,000 and at 30 June 2022 the cash balance was an overdraft (negative balance) of $26,000.

Required

We made a profit during 2022, so why do we have a bank overdraft (negative balance) of $26,000?’ exclaimed Mr Richards, the manager of Bland Ltd.

b. Explain to Mr Richards the relationship between profit and cash flow to help him understand why there is a difference between profit and cash in the bank. Provide two specific reasons why Bland Ltd’s profit for the year ended 30 June 2022 is greater than its bank balance. (3 marks)