Why does the income statement not present the cash inflows and outflows?
Income statement is used to evaluate the performance of the firm which is the ability of the company to generate revenue and cost associated with the revenue according to GAAP (accrual method). The cash flow statement is used to evaluate the firm’s ability in generating cash to cover all the expenses (cash method). For those who uses cash method, cash flow statement is used to find the net income and vice verse. The revenue and expenses do not have to be paid as long as it is realized or accrued then it is income or expenses for the firm. For more detail look at FASB codification 605: Revenue Recognition and FASB 700 for the expenses. Accrual method generate income statement, cash flow statement are easily defined (look at any Accounting intermediate text book) using indirect method.
