Because recognition and matching principles in financial accounting call for revenues, and the costs associated withproducing those revenues, to be booked when the revenues process is essentially complete, not necessarily when cash is collected or bills are paid.

Why does net income on the income statement not reflect actual cash flow?

Non-cash expenses, such as depreciation, amortization, and share-based compensation, must be included in net income, but those costs do not reduce the amount of cash a company generates in a given period. As a result, these expenses are added back into the cash flow statement.

Why is the income statement not a good representation of cash flow?

Explain why the income statement is not a good representation of cash flow. Most income statements contain some noncash items, so these must be accounted for whencalculating cash flows. Note that in all of our cash flow computations to determine cash flow from assets, we neverinclude the addition to retained earnings.

Why does the user of an income statement need to know the time period that it covers?

Why does the user of an income statement need to know the time period that it covers? because income statements are temporary account.at the end of each perioid they are closed and new period they began with zero balance. and which tells financial performance.

What are the major categories within an income statement?

The income statement focuses on four key items—revenue, expenses, gains, and losses.

What is the difference between cash flow and income?

A cash flow statement shows the exact amount of a company’s cash inflows and outflows over a period of time. The income statement is the most common financial statement and shows a company’s revenues and total expenses, including noncash accounting, such as depreciation over a period of time.

How is income statement related to cash flow?

Can you show a profit on your income statement but have a negative cash flow?

You can make a net profit and have negative cash flow. For example, your bills might be due before a customer pays an invoice. When that happens, you don’t have cash on hand to cover expenses. You can’t reinvest cash into your business when you have negative cash flow.