Question

How is cash flow different than net income? What are some items included in the cash flow statement that are not included in the profit and loss statement?

Answer 1

Net income is constructed based on accrued accounting that is once product is sold the transaction is reported in income statement and net income is calculated. in a cash flow is reported only when cash is received for the sale. this is the reason; cash flow is different from net income if sale and purchase is made on credit. also, depreciation (a non-cash expenses) is deducted from sales revenue to calculate net income.

So, to calculate cash flow of a company we adjust (add) depreciation expenses from net income. apart from that change is working capital and capital expenditures deducted from net income to calculate cash flows.