Difference Between Income Statement and Cash Flow Statement

Income Statement reflects the net profit or loss from the business activities for a particular accounting period. On the other hand, cash flow statement keeps a record of overall changes in the cash and cash equivalents of the business organization during a particular financial year.

Financial Statement refers to the official record of the financial activities and the overall position of the business entity. It is the final destination of the whole process of accounting, which comprises of the income statement, balance sheet, and cash flow statement. It is helpful to the interested parties in knowing the profitability, liquidity, performance and position of business. Check out the article provided to you, as it breaks down all the important differences between income statement and cash flow statement.

Content: Income Statement Vs Cash Flow Statement

1. Comparison Chart
2. Definition
3. Key Differences
4. Conclusion

Comparison Chart

Basis for Comparison	Income Statement	Cash Flow Statement
Meaning	The income statement is a part of financial statement which is used to show the revenues, gains, expenses and losses for a particular accounting period.	The cash flow statement is a part of financial statement which is used to reflect the inflows and outflows of cash for a particular accounting period.
Divided into	Two activities	Three activities
Basis	Accrual	Cash
Objective	To know the profitability and owner's equity.	To ascertain the liquidity and solvency of business.
Preparation	On the basis of various records and ledger accounts.	On the basis of income statement and balance sheet.
Depreciation	Considered	Not considered

Definition of Income Statement

The income statement is one of the major parts of the financial statement. It is used to represent the revenues, gains, expenses and losses from operating and non-operating activities of the company. When the total revenues (including gains) exceed the total expenses, then the result would be the net income while if the total expenses (including losses) exceed total revenues, then the result would be the net loss.

Here operating activities state the activities which are related to the day-to-day business of the company like manufacturing, purchasing, selling and distribution of goods and services. Non- operating activities means the activities which are related to purchase or sale of investments, assets, payment of dividend; taxes; interest and foreign exchange gains or losses.

Definition of Cash Flow Statement

The cash flow statement is also an important part of the financial statement of a company. It is used to represent the cash inflows and outflows during the year from operating, investing and financing activities. The statement reflects the position of cash and cash equivalents at the beginning and end of the accounting year. It shows the movement of cash during the period.

Here operating activities include the basic activities of the company like manufacturing, purchasing, selling and distribution of goods and services. Investing activities include the purchase and sale of investments and assets. Financing activities include the issue and redemption of shares or debentures and other financing activities related to the dividend, interest, etc.

Conclusion

The preparation of the income statement and the cash flow statement is mandatory for all business organisations. The two statements are used by the readers (stakeholders, i.e. creditors, investors, suppliers, competitors, employees, etc.) of financial statement to know about the company’s performance, stability and solvency position. These statements are also used for the purpose of internal and tax audit.