Question : Assertion (A): Cash Flow statement is a substitute for income statement.
Reason (R): Cash Flow Statement does not show Profit and Loss.
In the context of above two statements, which of the following is correct?
Option 1: Assertion (A) and Reson (R) are correct but the reason (R) is not the correct explanation of Assertion (A).
Option 2: Both, Assertion (A) and Reason (R) are correct and Reason (R) is the correct explanation of Assertion (A)
Option 3: Only Assertion (A) is correct
Option 4: Assertion (A) is not correct but the Reason (R) is correct
Correct Answer: Assertion (A) is not correct but the Reason (R) is correct
Solution : Assertion (A) is not correct but the Reason (R) is correct. Because Profit is the revenue that is left over after business expenses have been deducted, whereas cash flow is the volume of money coming into and going out of a business at any one time. Profit is a better indicator of how well your company is doing, but cash flow is more crucial to the day-to-day operations of the company Hence Cash flow is not a substitute for income statement.
Hence the correct answer is option 4.
