Commercial bookkeeping and financial planning require understanding the differences separating cash flow statements from income statements. Both play key balance sheet roles to help make informed business decisions. Learn about the differences here as part of your financial management education.

Cash Flow

These statements detail how your company’s cash was used during a set timeframe, which is usually about a month, to help maintain bookkeeping records. They are typically divided into three sections: financing, investing, and operations.

Financing shows how cash was used from borrowing and lending activities, as well as money generated from company stocks and bonds. The investing section shows cash accumulations from business investments, as well as asset purchases, such as equipment and tools. Operations concerns the amount of cash used every day to keep the business afloat.

Since cash flow statements show business income and spending habits, they determine its current liquidity and solvency. They let business owners know what funds are available for paying creditors but do not account for non-cash items, including amortization and depreciation.

Income

Income statements provide comprehensive business financial reports using ledgers and assorted records, also over a one-month period. They include depreciation and other non-cash items to determine how much money the company earns and spends.

Income statements provide clear pictures of the company’s profits and losses, with the former hopefully larger than the latter. Also known as Profit & Loss (P&L) reports, income statements are necessary to complete tax forms and allow business owners to identify revenue and spending trends, which helps determine where to cut costs and where to invest.

Income statements are generally separated into operating income/profit, such as sales and services, and non-operating income, such as sale gains and losses from fixed assets. They are necessary for creating cash flow statements because profits and losses are used to establish monthly cash flows. 

Ensure accurate income and cash flow statements with services from Hannegan & Associates. The CPAs at this Edgewood, KY, agency serve clients throughout the Tri-State area, providing bookkeeping, tax preparation, and payroll services since 2013. Call (859) 291-0101 today to schedule a consultation or learn more about bookkeeping and financial planning services online.