Question

The essential difference between the statement of cash flows and the income statement is that:

Select one:

A. The income statement is based on the accruals concept, whereas the statement of cash flows reports cash received and paid.

B. The income statement is prepared for external users, whereas the statement of cash flows is prepared for internal users only.

C. The statement of cash flows only deals with the investors’ needs, whereas the income statement also deals with the needs of the managers.

D. The statement of cash flows is a forecast of the future, whereas the income statement reports on historical events.

Answer 1

The essential difference between the statement of cash flows and the income statement is that

Ans A)the income statement is based on the the accrual concept whereas the statement of cash flows reports cash received and paid.

income statement is always prepared on the accrual basis which means that the income would be recorded when it would be earned whereas cash flow statement only shows the flow of cash during a period of time and it is not based on accrual basis and shows the actual flow of cash during a period of time.

B is incorrect because even external users are interested in the cash flow statement to ensure that the company has enough funds to Run the operations of the company successfully.

C is incorrect because income statement is not only for managers and even investors deals with it to know how much profit the company is generating during a period.

D is incorrect because cash flow statement is not a forecast of future ,it shows how much cash the company has during a period of time.cash flow budget is a forecast of future and not cash flow statement