Discretion and purpose of income statement:
Each type of financial statement provides financial decision makers with different types of information necessary to run the company. The income statement details the company's revenues, gains, expenses and losses but does not include cash receipts or cash disbursements. While the cash flow statement reports money actually received or paid.
1.1. Income statement
The income statement reports the company's financial performance with regards how much money was generated (revenue), how much was spent (expenses), and the difference (profit) between the two over a given period of time bases on accrual accounting approach which record transaction based on its due date rather than actual date of cash transactions. In short It can tell how much money shareholders would receive if the company were to distribute all of its net earnings.
Description and purpose of Cash flow statement
1.2. Cash flow statement.
The cash flow statement reports cumulative information regarding actual cash inflow transaction. It is a true reflection of the company's cash position and cash usage over operating, investing, and financing activities without much influence by various accounting concepts i.e. accrual accounting. It helps to show why the company either lost or gained money during that particular period in time.
.According to a 2010 Forbes articles entitled, "What is a Cash Flow Statement?" the "CFS allows investors to understand how a company's operations are running, where its money is coming from, and how it is being spent." The cash flow statement helps investors and potential investors determine whether a company can be trusted to spend their money wisely.
There are two methods of presenting the cash flow activities
• Direct methods, reports cash inflows and outflows directly from cash receipts i.e. from customers, and payments i.e. to suppliers. It demonstrates more of the qualities of true cash flow statement because it...