The money a business has as reserves at the end of a particular period, maybe a month of a fiscal year is the accounting income, and this makes it different from Cash flows. There are several regulatory guidelines that are floated by Financial Accounting Standards Board, the U.S. Securities and Exchange Commission and the American Institute of Certified Public Accountants, to highlight this difference, and helping business record and report revenue and expense data.
Liquidity report or cash flow statement
Cash flow is the money that comes in & goes from a company’s operating accounts. Finance professionals call the jumbled up initiatives taken up by entrepreneurs to make arrangements for money across a specific period, liquidity management. And this is not it, they try to make more of it over a period, reduce costs quarter after quarter and maintain a profitable business down the years. Liquidity report, fondly known as cash flow statement, is the comprehensive data which provides insight into cash flows from operating, investing and financing activities.
Accounting income or net income
Total revenue less the total expense is what gives you the accounting income. However; several aspects of it such as gross income and operating income make it into the company’s profitability lines. Gross income is a sum total of sales revenue but not including cost of goods sold, which is also known as material expenses or inventory outlays.
Operating income is a total of gross incomes less operating expenses clubbed with rent, insurance, and salaries. So if you deduct non-operating costs alike one time renovation of a product plant, what you get is taxable income. This further becomes net income after clearing the fiscal debts. Accounting income and net income are the same if you surf through the financial dictionary.
What is common between cash flow and accounting income?
Cash flow and accounting income have nothing in common, except, that as a concept they do correlate. In a very idealistic situation, net income gets converted into money, however; this does not happen every time. It refers to situations where customers face financial crisis and cannot remit funds in time. This warrants business owners to decide on to policies and take help from accountants and bookkeepers who can assist them in monitoring clients regularly and even identify those customers with financial crisis.
These financial solution providers are also instrumental in setting up the policies as per your business needs, and prevent the company from incurring losses. This helps enterprises and companies to stand out of the crowd, and is highly recommended by cash managers, lenders and investors.
Consequences of immature financial reporting
Cash flow management is all so much about liquidity reports, and at the same time accounting income involves income statement fondly known as P & L – profit and loss. But the question here is, if you are going to manage all these, or you have created a situation where it becomes mandatory for you to manage the accounting and bookkeeping activities of your business, who is supposed to take care of your customers; existing and potential. Instead seek help of professional accountants and bookkeeping experts, who can manage this show for you, while you focus on your core business activities.