What is the Difference Between Income Statement and Cash Flow Statement?

The income statement and cash flow statement are two integral parts of a corporate balance sheet that provide distinct information about a company's financial performance and position. Here are the key differences between the two:

Income Statement:

Shows a company's revenues, expenses, profits, or losses over a specific period of time.
Reflects a company's financial performance, including noncash accounting such as depreciation.
Comes in two formats: single-step income statement and multi-step income statement.
Helps users understand the profitability of the company during a specific period.

Cash Flow Statement:

Measures the sources of a company's cash and its uses over a given time frame.
Focuses on the actual cash inflows and outflows, ignoring non-cash "income" such as depreciation.
Comes in two types: direct cash flow statement and indirect cash flow statement.
Helps users understand how much cash a company generates and how it is used.

The cash flow statement is linked to the income statement by net profit or net burn, which is the first line item of a cash flow statement, used to calculate cash flow from operations. Both statements are essential for understanding a company's financial position and performance, and using them in conjunction with each other can help users make informed financial decisions.

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What is the Difference Between Income Statement and Cash Flow Statement?

Comparative Table: Income Statement vs Cash Flow Statement

The main differences between an income statement and a cash flow statement are their purpose, the items they include, and the accounting methods they follow. Here is a table summarizing the differences:

Income Statement	Cash Flow Statement
Measures a company's financial performance, including revenues, expenses, profits, and losses over a specific period of time.	Measures the sources and uses of a company's cash over a specific period of time.
Follows the accrual basis of accounting, which records revenues and expenses when they are incurred, regardless of when cash is exchanged.	Follows the cash basis of accounting, which records revenues and expenses when cash is actually received or paid.
Includes non-cash items such as depreciation.	Does not record depreciation since it is a non-cash item.
Shows the net profit or loss from business activities for a particular accounting period.	Reveals the company's cash position and how much cash the firm has on hand.
Commonly reported quarterly and annually to disclose financial trends and comparisons.	Can be prepared either monthly, quarterly, or annually.

Both the income statement and cash flow statement are essential components of a company's financial analysis, providing unique insights into its financial health. While the income statement reflects a company's revenues and expenses, the cash flow statement reflects how that profit is generated and used in terms of cash.

Guilherme Mazui

Guilherme Mazui is graduated in journalism from the Federal University of Minas Gerais (UFMG) and a master's degree in Communication from the University of São Paulo (USP). In addition, he has experience in advertising writing and has worked as a content editor in several companies.