Both are integral parts of a corporate balance sheet. The cash flow statement, or statement of cash flows, measures the sources of a company's cash and its uses of cash over a specific time period. The income statement measures a company's financial performance, such as revenues, expenses, profits or losses over a specific time period (in fact, it's sometimes called a statement of financial performance).
A cash flow statement shows exactly how much money a company has received and how much it has spent, traditionally over a period of one month. It captures the current operating results and changes on the balance sheet, such as increases or decreases in accounts receivable or accounts payable, and does not include noncash accounting items such as depreciation and amortization. The cash flow generally comes from revenue received as a result of business activity, but it may be augmented by funds available as a result of credit. A cash flow statement is used to determine the short-term viability and liquidity of a company, specifically how well it is positioned to pay its bills and vendors.
What Is The Difference Between A Cash Flow Statement And An Income Statement?
An income statement, the most common financial statement, shows a company's revenue and total expenses, including noncash accounting such as depreciation, traditionally over a period of one month. An income statement is used to determine the performance of a company, specifically how much money it made, how much money it paid out, and the resulting profit or loss from the revenue and expenses.
The cash flow statement is linked to the income statement by net profit or net burn. The profit or burn on the income statement then is used to calculate cash flow from operations. This is referred to as the indirect method. Another technique, called the direct method, can also be used to prepare the cash flow statement: In this case, the money received is subtracted from the money spent to calculate net cash flow.