I am frequently asked the following question:
My business is reporting a net profit at year-end, and I would expect an amount equal to my net profit in my bank account, but my bank balance is much less than my reported net profit.
I would also like to declare dividends and pay a portion of the net profit to my shareholders, but I do not have the cash available to pay the dividends. How is this possible?
Net profit is calculated by subtracting your business’s operational expenses and cost of goods sold from your business sales or income. There are certain expenses that are not considered operational expenses or cost of goods sold expenses and such expenses will not reduce your net profit.