Why is there a difference between earnings and cash flows?
A)Because of accruals and non-cash items.
B)Because of the difference in accounting methods.
C)Because cash flow statements and income statements follow different GAAP.
D)Because expenses are not accounted for the same way as revenues.

Question

Quizplus · Accepted Answer

Earnings and cash flows can differ due to accruals and non-cash items. Earnings are calculated using accrual accounting, which takes into account revenues and expenses that have been earned or incurred but not necessarily received or paid in cash yet. Cash flows, on the other hand, only take into account actual inflows and outflows of cash. This can result in differences between the two measures.

Why Is There a Difference Between Earnings and Cash Flows