In the Financial world, you may want to know more about the cash flow statement and income statement and difference between each other. you also may want to the effect of these statements on the economy. here, you will find the definition of each statement and the difference between them.
Cash Flow Statement
It is a statement that presents the changes on balance sheet, accounts and income affect cash and cash equivalents. it divided into three segments:
- cash flow operating activities cash used during daily operations.
- cash flow investing activities cash used to purchase equipment or other assets.
- cash flow financing activities cash used for borrowing or lending.
Cash flow aims to:
- provide information on a firm’s fluidity and solvency and its ability to change cash flows in the future state of affairs.
- provide additional information for evaluating assets changes, liabilities, and equity.
- improve the comparability of different firms’ operating performance by eliminating the effects of different accounting methods
- indicate the amount, timing and probability of future cash flows.
It is the statement that presents the company’s income and expenses during a particular period. It indicates how the income is transformed into the net income or net profit. it has some items appear in it such as:
- Sales Revenue.
- Cost of Goods Sold.
- Total or Specific General Expenses (SG&A).
- Depreciation Expense.
- Interest Expense.
- Tax Expense.
Income statement has some limitations:
- Items that might be relevant but cannot be reliably measured are not reported.
- Some numbers depend on the accounting methods used.
- Some numbers depend on judgments and estimates.
Cash Flow Statement Vs Income Statement
After we discuss the cash flow statement and income statement and each content. now we will discuss the differences between them. companies should include each of cash flow and income statement to build a complete image of their activities.
The income statement describes how the assets and liabilities were used in the stated accounting period. The cash flow statement explains cash inflows and outflows, and it will ultimately reveal the amount of cash the company has on hand, which is also reported in the balance sheet.
Cash flow statements track profits, but also how the money was used. It also shows cash draws and expenses and lets you know what should be in the bank to cover future needs as they arise. but The income statement does not show money that is acquired from loans or equity sold to investors. It doesn’t account for cash draws that the owners may take or divisions of the business that may be sold.
For example, Cash Flow provides shorter-term information that the company needs on a daily basis. on the other hand, the income statement provides a bigger picture. it allows the company to observe a business’s longer-term trends in spending and earning.