Difference Between Cash Flow and Net Income

Cash Flow vs Net Income

Cash flow and net income are terms often heard in accounting. People often confuse between cash flow and income thinking it to be the same. But in reality, these are totally different concepts though related with availability of money. While cash flow refers to cash that comes in and goes out of the business all the time, profit is always what remains at the end of a financial year with the owner of a business. While it is profits that a business owner is more interested in, in reality it is cash flow that is the lifeline of any business as it ensures availability of money required for day to day operations as well as investments to be made to create capital assets. Let us see the difference between cash flow and net income.

Cash flow and net income are two parameters that can tell a lot about the financial health of a company. These two can be clearly seen in the financial statements of the company.

Cash Flow

For those who prepare accounts of a company, cash flow refers to the amount of money that a business receives and spends in a particular period of time. You cannot take sales on credit as cash flow and it is actually the money that you have collected and have at your disposal to spend on business.

Net income

Net income, on the other hand is the profit or loss generated after all the costs and expenses are subtracted from the earnings. Net income is generally at the bottom of a financial statement and easy to locate.

Difference between Cash Flow and Net Income

The difference between cashflow and net income arises when sales that have not brought in money are added in the sales column. This causes net income to be more than it actually is. The money is not yet available as cash flow and thus cannot be spent. Cash flow is thus money coming in and going out, income is cash flow less all the expenses.

In brief: • Cash flow and net income are important parameters in the financial statement of a company • Net income is the money that remains with the owner at the end of a financial year whereas net flow is the money that goes in and out of the business at any given point of time • Cash flow shows where the money has come from, and where it goes in the form of expenses. On the other hand, net income is a mere figure at the bottom of a financial statement