How is it possible that I have profits and owe taxes if I have no money in the bank??
That is a really common one.
Not everything your business spends cash on shows up on your Profit and Loss report as an expense. If you:
1. Spend money on personal expenses.
2. Make a payment on a liability such as a loan, line of credit, or credit card.
3. Purchase assets such as inventory, equipment, or other property
Those transactions show up on your balance sheet, as they affect asset, liability, or equity accounts.
Ingrid Edstrom is a bookkeeping nerd and CEO of the award winning bookkeeping firm, Polymath LLC.