Cash Flow report vs. Income Statement

Mike or Penny Novack stepbystepfarm at mtdata.com
Tue Jun 16 18:57:51 EDT 2009


timzak wrote:

>I've been using the Cash Flow report to track my monthly income and expenses.
>  
>
.............

>It seems very similar to Cash Flow, except it does not list
>everything that is on the Cash Flow report.  I don't have a handle on
>exactly what the difference is, but I do notice that credit card payments
>are NOT listed on the Income Statement report, while they ARE listed on the
>Cash Flow report.  Can someone shed some light as to why, and in general,
>what the differences between these two reports are?
>  
>
Well yes -- the difference is that the Income Statement shows income and 
expenses while the Cash Flow report shows the movement of cash in and out.

Let's take the credit card example which has you puzzled.


a) You buy X and pay for it by charging to your credit card (where item 
X is an expense item, a "consumable" rather than an asset)
b) You buy Y and pay for it by charging to your credit card (where item 
Y is an expense item, a "consumable" rather than an asset)
c) You buy Z and pay for it by charging to your credit card (where item 
Z is an expense item, a "consumable" rather than an asset)
d) You get a statement from the credit card company and write a check to 
pay the entire balance.

OK ---- then items a, b, and c should each show in the Income Statement 
totals as expenses. They should not show on the "Cash Flow" as you did 
not have an outgo of cash at that time of these transactions. Instead 
you assumed a liability (the credit card account). Item d should show on 
the Cash Flow report (you sent cash out on that date)  but not on the 
Income Statement as neither an income nor expense item. You were simply 
decreasing both the asset cash and the liability credit card balance 
(they are on opposite sides of the ledger).

I know I keep saying this but there is no way around having to learn at 
least the bare fundamentals of accounting principles. We could maybe 
discuss here whether the introduction that GnUCash provides to double 
entry bookkeeping is adequate or not IF people have read through it. 
That is perhaps a big if.

Michael


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