Right now, you’re probably wondering why we need an income statement and a cash flow statement—after all, if a company makes money, it makes money, right? The difference lies in a confusing concept called accrual accounting. Here’s how it works. Companies record sales (or revenue) when a service or a good is provided to the buyer, regardless of when the buyer pays. As long as the company is reasonably certain that the buyer will eventually pay the bill, the company can post the sale to its income statement. The cash flow statement, on the other hand, is concerned only with when cash is
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