Cash flow statement

Income statement

A report that tells you the amount of revenue earned for a specific period mostly on a yearly basis is called income statement. It also depicts expenses incurred and the costs involved for gaining that revenue. Literally speaking it tells about the company's net profits or losses over a fixed time period.

An income statement reports the Annual earnings per share .This is a way of telling how much money would each shareholder get if the company decides to give equally all the net earnings.

To calculate the income statement we have the total sales that have happened during the accounting period. Then you deduct each time for the costs associated with earning the revenue. After subtracting all the expenses you get to know the value of money lost or earned during the financial year. It is often called as the bottom line of the company and is a very valuable tool. The top level of the income statement consists of money from the sale of products.This is called gross revenue. The next line consists of money from discounts and return of products. When we deduct returns and allowances from total revenue you get net revenue.

After that there is the cost of sales. This tells us the money that is being spent by the company in production of goods and services that were sold during that year. Cost of sales is subtracted from net revenue to come at gross profit or it is sometimes referred to as gross margin. Then you deduct operating expenses and marketing expenses. Then next comes depreciation who takes into consideration the lessening of the total worth. After subtracting from profit all the expenses you get operating profit. Finally accounting for interest income, interest expense you get operating profit before tax and after deducting income tax you get net profit. This tells you the total money gained or lost during the period

Cash flow statement

A cash flow statement tells about an organization's total cash outflow and inflow. This kind of statement becomes very important as an organization should always have plenty of cash to pay off all the expenses and buy the assets to grow further. A cash flow statement shows corrections over the time instead of changing in exact dollars at a time point. Cash flow statement is distinguished into 3 major parts. Each part is responsible from the cash from one of the following three kinds of activity.

  1. Operating activities
  2. Investing activities
  3. Financing activities

While the cash flow statement tells you if the company generated any cash or not during the particular time period, the income statement demonstrates whether the company was profitable or not for the particular time period. The information generated from the balance sheet and also the income statement is used and reordered by the cash flow statement. In short the cash flow statement tells the company as well as the investor about the total increase or decrease in cash of the company. (Beginners' Guide to Financial Statements, 2007)

References

  • Beginner's Guide to financial statements. (n.d.). Retrieved on April 2, 2010 from http://www.sec.gov/investor/pubs/begfinstmtguide.htm

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