How Does The Statement of Cash Flows Differ From The Income Statement?

Statement of Cash Flow
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Question 1
How Does The Statement of Cash Flows Differ From The Income Statement?
The statement of Cash Flow and Income Statement are crucial necessaries piece of the accounting financial statements as they serves as useful tool to all the relevant financial users such as the investors and creditors. As much as the two appears to serve the same accounting purpose, both have distinctive features that makes the two major accounting statements difference. Therefore, below are the differences between an income statement and cash flow statement.
First, an income statement refers an accounting report that focuses on revealing a company’s profit and losses, revenues and other gains in a particular financial year whereas, the cash flow statement is used to report a company’s inflows and outflow of cash over a particular financial year (Srivastava & Murugen, 2015). Considering the structures, income statement is divided into two structures; the revenue and expenses segments whereas a cash flow statement is divided into three sections, namely cash from operating activities, cash flow from investing activities and cash flows from financing activities (Srivastava & Murugen, 2015). Another difference is that, the income statement records financial data on accrual basis while cash flow statement only record transactions on cash basis. lastly, while the the income statement has the objective is to reveal a company’s profitability and owners’ equity while the objective of the cash flow statement is to ascertain the liquidity and solvency of the company basing on cash inflows and outflows analysis (Srivastava & Murugen, 2015).
As mentioned above, the cash flow statement is divided into three parts; the operating activities, investing activities and financing activities. (Stickney, Weil, Schipper, & Francis, 2014) The operating activities are the cash events that indicates the major sources of a business’s cash generation. In other words, this parts reports how much an organization has generated from its key business operations (Wahlen, Baginski, & Bradshaw, 2014). Resulting, cash flow from investment activities indicates the amount of cash a business has put into investment activities. Investment activities is also known as capital expenditure and it normally appears as cash outflows the a company ...