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Cash flow and income statement.

Discuss Cash flow and income statement.

A cash flow statement is a financial statement that provides a detailed and summarized
explanation of the changes in a company’s cash during a certain period by showing a company’s
sources and uses of cash during a particular period. This statements main aim is to list the
various items that are responsible for the changes in cash balances between two periods in a
balance sheet. All items that either reduce or increase the cash in a company are all included in
this statement (Bodie, Kane, and Marcus, 2004).
When preparing a cash flow statement, the main focus is on cash not the working capital.
This statement is of great use to the management and directors of the company. It’s not of much
use to the external users.

  1. Apply business theories, models, and concepts to guide analysis of problems and
    Retained profits should be adjusted to arrive at the figures in the financial documents. The
    following should be adjusted accordingly.

Cash flow and income statement.


Depreciation is an internal readjustment and does not reflect use of cash. Where depreciation has
been provided then it should be added back to the profits to show the flow of cash arising out of
the retention of the profits.
Taxation based on the current year’s profits and the proposed provision of dividends and
do not affect cash out flow. Taxation and dividends should be added back to give an adjusted
When assets are sold at a profit then they should be entered correctly. The profit and loss
account should be either credited or debited depending on whether it’s a profit or loss.
The capital or loan capital represents actual cash from an issue of authorized shares to the
public. They should include only premiums and exclude discounts.
When assets have been disposed, the real amounts received should be shown. Where
assets have been bought, then the proceeds should be deducted to give a new figure. At times it
may be necessary to recalculate the assets and the depreciation account to get the right figure.

  1. Utilize data driven analysis in making business decisions.
    The major issue in the cash flow statement is the increment in the value of land which
    contributed positively to the financial records of Nybrostrand. The income statement shows a net
    profit of 85150 before taxes and 53250 after tax and dividends payment. The retained earnings
    for the previous year is 108850

Cash flow and income statement.


Comparison between the income statement and the cash flow statement
The income statement shows the revenue expenditure and income for the year ended 31 st
Dec. It shows revenue items only. The main purpose of preparing the income statement is to
determine the profit or loss made for a particular trading period.
The cash flow statement is a financial statement that explains the changes in a company’s
cash for a particular period. The statement targets to list all the items that bring changes to a
company’s cash balances for a certain period of time. The main reason of preparing cash flow
statement is to identify the major sources and the use of cash. Also to find out the areas that
needs attention in a business.
The main items in the income statement are the gross revenue and the cost of goods sold.
When these two are deducted then it gives the total gross profits for the firm. The main items in
the cash flow statement are the opening balance and the closing balance. The differences
between them, display the changes in financial position between the two accounting period.
The Excel work sheet contains the cash flow statement, the income statement, the balance


Wild, J. Fundamental Accounting Principles (18th edition Ed.). New York: McGraw-Hill
Companies. pp. 630–633.

Cash flow and income statement.


Bodie, Z. Kane, A. and Marcus, J. (2004). Essentials of Investments, 5th ed. McGraw-
Hill Irwin. pp. 455. ISBN   0-07-251077-3 .
Warren, C. (2008). Survey of Accounting. Cincinnati: South-Western College Pub. pp. 128–

  1. ISBN   978-0-324-65826-2
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