Cash-to Cash cycle is also known as working-capital-cycle. Cash becomes cash each time the cycle goes round. Cash-to-cash cycle starts when business use(Assets / Expenses) cash sourced (Liabilities) to produce a product/service till it receives cash(income) by selling that product/service which again (retained profit- Reserves & Surplus) gets used in next cycle.
When business is using money, it means money is going out of business. When money goes out it either becomes Expense or creates and Asset. The business is using the money it has sourced. These are the liabilities. When it sells a particular product/service and customers pay, the company will receive money. This is when money comes in. This is called Income. The money that the business receives after paying all the expenses, overheads, tax and interest will be left in form of Profit.
Profit cannot be withdrawn completely. A substantial portion of it has to be retained for the business to continue the operations. The retained profit is called Reserves and Surplus.
If you take a closer look there are only three kinds of business in the whole world. It is true just read on.
- Business that makes money by selling a product, which is manufacturing business.
- Business that makes money by offering a service, which is Service business. And
- Business that makes money by selling the product and providing service to the product. Largely it will be wholesalers and retail business.