Sure enough, Enron’s financial filings soon included this phrase: “recognized, but unrealized, income.” In other words, Enron had booked the earnings, but it didn’t yet have the cash. If the estimated value is correct, then over the life of the contract, the cash should equal the earnings, but the longer the term of the contract, the bigger the initial mismatch. And of course, you can’t run a business on paper profits—at least, not forever.
