Question

How is the income statement lacking in terms of cash flow analysis? Why are accrued expenses not also considered "noncash" items?

Answer 1

solution) Income statement is the statement that shows the net profit or net loss for the particular accounting period. However income statement doesnt show the liquidity position of the business. Actual liquidity of business can be known from cash flow statement. Realising net profit doesnt means that business is holding same level of cash. Income statement is just the nominal account which shows all expenses and incomes whether paid or received in cash or are accrued.

Accrued expenses are not also considered as non cash item because they become due in particular accounting period and will be paid within short period of time. Non cash item like depreciation are never paid in cash but accrued expenses are always paid in cash within short period of time once they become due.