Question

How are cash flows different from revenues and expenses?

How are cash flows different from revenues and expenses?

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Answer #1

Revenues and expenses refer to accounting incomes and expenses. These are recorded in the income statement as per the accounting standards. They are recorded on accrual basis. Hence the incomes are recorded as and when earned irrespective of whether cash against them is actually received. Similarly expenses are recorded as and when incurred irrespective of whether cash has been spent. Also expenses include noncash expenses such as depreciation. Hence cash flows refer to actual cash inflows and outflows and this differs from revenues and expenses.

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