What is the difference between the income statement and the statement of the cash flows?



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What is the difference between the income statement and the statement of the cash flows?

1 Answer(s)


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The income statement gives you a cumulative financial performance of the company over a period of time. It specifically focuses on 3 components. Revenue - how much money is the company making by selling its products? Number 2 - operating expense - what are the various avenues with the company spending its money, and finally - net income or profitability.

The income statement is always for a specific period of time and indicates profitability of the company. The income statement is also used by analyst to understand how operationally efficient a company is. How the company's revenue is growing, etc.

The cash flow statement also provides a financial cumulative financial performance of a company over a period of time, but it focuses on 1 specific element, which is how is the company spending its cash. Now this is different from the income statement because all revenue is not cash and all expenses are not cash expense. There are some times when revenue will be recognizes this financial year in the income statement, but cash may not have been received, cash is only coming in the next financial year, so the cash flow statement do not account for that kind of revenue.

There are also situations where there are non-cash expenses in the income statement like depreciation - amortization and the cash flow statement will indicate this long cash expenses will back them out whereas the income statement will add it to the operating expenses. Sometimes cash flow statements are considered to be the most important of financial statements for a company, because it determines if the company has got money for ongoing operations or will it go bankrupt.