What is the difference between income statement and cash flow statement?

The income statement and cash flow statement are the integral segments of the balance sheet of any corporate. When it comes to the cash flow statement, it measures the overall sources of the cash of a company and its cash users over particular time duration.  On the other hand, an income statement effectively measures the financial performance of a company including losses, profits, expenses or revenues over a particular time duration. It is sometimes known as the financial performance statement. The cash flow statement demonstrates whether an organization produced cash and income statement demonstrates whether an organization makes revenue.

Comparison table

Basic terms

Cash flow statement

Income statement

Description

It is the segment of the financial statement that is used for reflecting both the outflows and inflows of cash for a specific accounting time.

It is a segment of financial statement that is used for showing the gains, losses, gains and expenses for a specific accounting time

Basis

Cash

Accrual

Classified into

Three activities

Two activities

Goal

To ascertain both the solvency and liquidity of the business

To know the owner’s equity and profitability

 

Depreciation

Not considered

Considered

Preparation

Based on the balance sheet and income statement

Based on the basis of different ledger accounts and records

 

What is the cash flow statement?

It is the most important segment of the company’s financial statement. The cash flow statement is used for showing the outflows and inflows during a particular year from investing, financing and operating activities. It shows the overall position of cash equivalents and cash at the end and starting of an accounting year.  It also displays the cash movement during a particular time period.

The operating activities are the basic activities of the organization including purchasing, distribution, manufacturing, and selling of services and goods.  The investing activities cover the sale and purchase of assets and investments. The financing activities are the redemption and issue of debentures or shares and remaining financing activities associated with the interest, dividend and much more.

What is the income statement?

It is the major segment of the financial statement. The income statement is used for showing the expenses, losses, revenues, and gains from the non-operating and operating activities of the organization.  In any instance, if the overall gains including revenue exceed the overall expenses, the outcome is bet income. If total losses including expenses exceed overall revenues, the result is a net loss.

The operating activities cover the activities that are related to daily business activities of the organization including selling, purchasing, distribution and manufacturing of services and goods. When it comes to non-operating activities, they are associated with the sale or purchase of assets, investments, and payment of the dividend.

The key variation between cash flow and income statement

•    The key variation between cash flow and income statement is cash. It is because the cash flow statement is entirely based on the cash payment and actual receipt while the income statement is purely based on an accrual basis

•    The cash flow statement is classified into 3 different activities including financing, operating and investing, whereas an income statement is divided into 2 main activities including non-operating and operating activities.

•    Income statements are based on the accrual accounting system, wherein expenses and incomes of the financial duration are considered. When it comes to cash flow statements, they are based on the account cash system that considers only the actually outflows and inflows of money in a specific financial year.

•    You can use the income statement to know the overall profitability of your company.  With the cash flow statement, you can know the solvency and liquidity of your business. They are the essential resources that will determine the future and present cash flows

•    Depreciation is excluded properly from the cash flow statement, but a similar thing is considered an income statement.

Important note:

It is mandatory for almost every business organization is to prepare the cash flow statement and income statement. They are the two important statements used by the stakeholders including investors, employees, suppliers, creditors and even competitors of the financial statement.  It is because they help them to know the solvency, performance, and stability of the company.  Along with this, the cash flow and income statements are used for the tax audit and internal purpose.

 

 

 

 

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