Cash flows vs accounting profits, Financial Management

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Posted Date: 2/14/2013 12:48:01 AM | Location : United States





Cash flows vs accounting profits

Accounting Income

Accounting income equals total revenues minus total expenses, but a range of indicators, including gross income and operating income, makes it into profitability line of a company. Gross income equals total sales revenue minus cost of goods sold as well referred to as inventory outlays or material expense. Gross income minus operating expenses, including things such as salaries, rent and insurance, equals operating income. While you subtract non-operating outlays -- such as the one-time renovation of a production plant after meteorological damage -- you get taxable income that becomes net income after settling fiscal debts. In a financial dictionary, the words "accounting income" and "net income" are similar.

Cash Flow

Cash flow touches on money coming in and exiting operating vaults of a company. Liquidity management is what finance people call the hodgepodge of initiatives an entrepreneur takes to make money throughout one period, make more of it over time, reduce expenses quarter after quarter and keep a profitable business down the road. A cash flow or liquidity report statement is a data synopsis that gives insight into cash flows from financing, investing and operating activities.

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