How do I explain cash vs profit questions? E.g. when the business has an increase in profit but a decrease in cash.
You should always start a Cash vs Profit question with something along the lines of "Under Accrual Accounting, cash and profit are different resources. There is a difference between revenues earned less expenses incurred and cash inflows less cash outflows. Some cash items do not affect profit and vice versa" This is probably the most important part as it is required to gain full marks.
Then you would go on to discuss what happened specifically for the business. As an example, GST Paid could have been more than GST received. This results in an increase in cash outflows however, seeing as GST is not a revenue or expense, it is not used to calculate profit so profit is left unchanged. A final example, Credit sales may have been greater than receipts from debtors. Credit Sales is a revenue resulting in an increase in revenues (and therefore profit). Receipts from debtors is a cash inflow however, it does not increase cash inflows as much as credit sales revenue increases profit leaving profit higher than cash flows from operating activities.
The Cambridge Textbook has a helpful table in Chapter 12 so you can memorise it and reverse it if you need to if the question is the other way around.
I have a question as well by the way. Is it called the Profit and Loss Summary or Profit/Loss Summary? In the textbook and VCAA assessment report is says Profit and Loss Summary but I thought the main purpose of having the account is to report a Profit OR a Loss, it can't report a Profit AND a Loss at the same time? Would I get marked down for saying Profit/Loss?