accounting question about cash flow

The basis for preparation of these two statement are different. Cash basis is used to prepare cash flow statement while accural basis is used to prepare income statement.

Under cash basis, transaction would only be recorded when there are cash flow in or out to the entity.

Under accural basis, transaction would be recorded when the income/expense incurrs.
i.e. all relevant expenses and income should be recorded in their appropriate period of time.

Cash statement is used to reflect the entity's ability to generate and manage cash. Even some capital in nature would be included which is excluded in the income statement. And income statement reflects the financial performance of the entity.

The different arise is due to above reason that I mentioned (capital income or expenditure). Also the difference arises becoz there are some non-cash transaction included in the income statement while they are excluded in the cash flow statement. The best example is the proviosion for the depreciation.

I think why the question ask u to use GST to consider is becoz the timing of incurring and payment would be normally different. Liablility to pay GST arises when goods are sold, say in 2006. So the amount of GST is included included in the income statement. However, normally the timing of payment of GST would be in the next year. So in the 2006 cash flow statement, this item would be excluded. Yet, during 2007, u might already paid the tax. So the amount of payment would be included in the 2007 cash flow statement while it is not included in 2007 income statement.

P.S. Actually I have already answered this question once. You can find that question in the reference.

首先你應該對cash flow statement同profit &loss a/c有少少認識
cash statement係 cash basis,即是該年度的支出和收入,但不包括prepaid & accrual expense,因為這兩樣不屬於今年度有現金流出和流入.
profit & loss ac 係accrual basis的,姐是所有屬於今年度所有的應付和應收賬目,不是收入和支出.因此是包括prepaid & accrual expenses的,所以做p/l 的時候,一些expenses如insurance 有prepaid, 便需要扣除(-)因為這不是該年度的支出.

你再用accrual concept 套落去....應該唔難明白...希望幫到你啦