book profit
Book profit is the profit your accounts say you made on paper, before tax and other adjustments turn it into what actually lands in your pocket.
In plain English
"Oga, the company made ₦12 million profit this year now, why is my bonus so small?" Ada asked her cousin Femi, who works in finance. Femi smiled and said, "That ₦12 million is book profit. It is what the accountant wrote down. It is not the same as cash sitting somewhere waiting to be shared."
Book profit is simply the profit calculated according to the accounting records, following the rules of proper bookkeeping, before tax is removed and before certain non cash items are stripped out. It lives in the income statement. It is real in the sense that the numbers add up correctly, but it is not always the same as the money physically available.
Here is why the gap happens. A company can record revenue once a service is delivered, even if the customer has not paid yet. It can also record expenses like depreciation, which is not an actual cash outflow but a way of spreading the cost of an asset over time. Both of these affect book profit without touching the bank account directly.
Think of a Lagos based logistics company that delivered goods worth ₦50 million in December but the clients will only pay in January. That ₦50 million counts towards book profit this year, even though the cash has not arrived. Meanwhile, a Nigerian working in Manchester and sending money home might notice something similar with a small business back home, the books show healthy profit, yet the family says there is no cash to expand the shop just yet.
Tax authorities in Nigeria, including FIRS, often use book profit as a starting point before applying their own adjustments to arrive at taxable profit. So book profit matters a great deal, it just is not the final word on how much money is truly free to spend, save, or share as dividends.
A small trading business in Onitsha recorded ₦8,000,000 in book profit for the year. Out of that, ₦3,000,000 was from goods sold on credit that customers had not yet paid for, and ₦500,000 was depreciation on delivery vans. So the actual cash sitting in the business account was closer to ₦4,500,000, even though the books proudly showed ₦8,000,000.
Questions people ask
Is book profit the same as taxable profit?
No. Book profit is calculated using accounting rules, while taxable profit is what remains after tax authorities like FIRS make their own adjustments, such as disallowing certain expenses or adding back specific items. Book profit is usually the starting figure, not the final one used for tax.
Why does book profit sometimes not match the cash in the bank?
Because accounting records income and expenses when they are earned or incurred, not necessarily when cash physically moves. Sales made on credit, depreciation, and provisions all affect book profit without an equal movement of cash on that same day.
Can a company show book profit and still struggle to pay salaries?
Yes, and this happens more often than people expect. A business can look profitable on paper because of unpaid customer invoices or asset values, while the actual cash sitting in the account is too low to cover salaries or rent that month.
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