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The income statement shows the difference between a firm's income and its costsi.e., its profitsduring a specified period of time. However, not all reported income

The income statement shows the difference between a firm's income and its costsi.e., its profitsduring a specified period of time. However, not all reported income comes in the form or cash, and reported costs likewise may not correctly reflect cash outlays. Therefore, there may be a substantial difference between a firm's reported profits and its actual cash flow for the same period.

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