A profitable month can leave less cash than expected. Before changing the tax figures to match the bank, check what each number includes.
A small worked example
Assume a sole proprietor starts the month with $1,000 in the bank. During the month, they earn $5,000, collect $4,000 of it, pay $1,000 of deductible operating expenses and transfer $800 to their personal account. Ignore sales tax, depreciation and all other transactions for this calculation.
- Closing bank balance: $1,000 + $4,000 - $1,000 - $800 = $3,200.
- Accrual profit: $5,000 earned - $1,000 expenses = $4,000.
- Still to collect: $1,000 in customer receivables.
The $800 personal withdrawal reduces cash, not the business profit. The opening bank balance is also not this month's sales. CRA distinguishes owner drawings and capital contributions, while its accounting-method guidance explains earned versus received income.
Reconcile transactions before drawing conclusions
Match each bank entry to its invoice, receipt, transfer or financing record. Check outstanding payments, merchant fees deducted from deposits, and transactions entered twice. A loan deposit isn't a customer sale. Moving money between your own accounts doesn't produce a second income item.
Then compare the reconciled bank account with the unpaid-invoice list and amounts owed to suppliers. Keep a separate note of tax obligations rather than treating every dollar in the bank as available spending money.
This example is a bookkeeping explanation, not a forecast or a tax estimate. A useful monthly report shows both profit and cash, with the difference explained in ordinary words.
Checked October 20, 2026. Read how a January payment clears a December invoice.
