Statement of Cash Flows vs. Income Statement: Understanding Cash Inflows from Operations

The statement of cash flows reveals how effectively an entity's profits translate into actual cash received from its core operations, offering a more comprehensive financial picture than the income statement alone.

Question: The principle that differentiates business assets from the personal assets of the owner, excluding the latter from the business's balance sheet, is known as the 'accounting entity' assumption. This concept ensures that business financial records are kept separate from the owner's personal finances, providing a clear view of the business's financial performance and position.

Answer: b. Accounting entity