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    Difference between cash flows and net income

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    Based on your knowledge of net income from accounting, why might cash flows be different from net income.

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    Cash flow can be different from net income because of several reasons:

    1. The incomes statements are generally prepared on accrual basis. The actual flow of cash is different from the accrual. For example, some part of sales is on the basis of credit. Some purchases are made on credit. The other examples are interest accrued but not paid, insurance paid but not used, etc.

    2. Net income ...

    Solution Summary

    The solution describes several reasons why cash flows are different from net income.