Net income and cash flow diverge by design: revenue is recorded when earned, not when paid

The idea

Cash accounting records money when it moves. Accrual accounting records revenue when it is earned and costs when they are incurred, whether or not any cash has changed hands, and matches the two in the same period. The point is to show the economics of a period rather than its bank transfers, and the price is that profit and cash disagree. Accounting Stuff walks the problem with cash accounting, the accrual answer, and the matching principle in that order, which is the order that makes the rest of financial statements make sense: every accrual is a timing difference that will reverse, and the cash flow statement is where it does.

Accrual profit is the economics of a period; cash is the bank account. Every difference is a timing gap that the cash flow statement reconciles.

How to use it

Take any company's net income and operating cash flow and list the reconciling items. Each one is an accrual, and being able to say what each one is timing is the whole of the walk-me-through-the-statements question.