Income Statement vs. Cash Flow Statement

Basically, "The objective of financial statements is to provide information about the financial position, performance and changes in financial position of an enterprise that is useful to a wide range of users in making economic decisions.” They was accompanied by a management discussion and analysis. Such as balance sheet, income statement, statement of retained earnings and cash flow statement. Though we have income statement and cash flow statement, we don’t know what’s the difference between income statement and cash flow statement, and when to use these two type of analysis. Therefore, learning how to distinguish income statement and cash flow statement is very significant for us.

Income Statement:
It reports the sales or proceeds of a period, the reasonable cost of the goods sold, and the profit (net income) remaining after the cost. It also known as profit and loss statements (statement of profit and loss).

Cash Flow Statement:
It reports on a company’s cash flow activities. It gives information about the cash receipts, cash payments, and net change in cash that results from operating, investing, and financing activities during a period.

Difference between income statement and cash flow statement:

Meaning: 

Income statement: It is used to show the revenue, expenses, gains and losses for a particular accounting period. It can show profit, but it doesn’t show the amount of cash that was generated by operations.

Cash flow statement: It is used to reflect the ingoing and outflows of cash for a particular accounting period.

Basis: 

Income statement: Accrual

Cash flow statement: Cash

Objective:

Income statement: To know the owner’s equity and the profitability.

Cash flow statement: To help creditors, investors, and others evaluate the following aspects of the company’s financial position.

The major difference between income statements and cash flow statements is cash. Depreciation is considered in the income statement, yet isn’t considered in the cash flow statement. The former can be divided into two activities, and the other can be divided into three activities.

In conclusion, the two statement are used by the stakeholders. These statements are also used for the purpose of internal and tax audit.

Why do I need income statement and cash flow statement?

Income statement and cash flow statement stand for different yet related information, and the picture of your company is incomplete without understanding both.

Reference:

https://en.wikipedia.org/wiki/Financial_statement

https://wellsfargoworks.com/start/article/understanding-income-statements-and-cash-flow-statements