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Difference Between Cash flow and Fund flow Statement with Comparison Table

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Difference Between Cash flow and Fund flow Statement with Comparison Table
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In this article, we will be discussing Cash flow and Fund flow statements, what is Cash flow, what is fund flow, the Difference Between Cash flow and Fund flow, Objectives of Cash flow and Fund flow statements etc. We begin with a comparative chart depicting the difference between cash flow and Fund flow statements.

Read on for more.

Funds Flow Statement vs. Cash Flow Statement 

Basis of Comparison

Cash Flow Statement

Fund Flow Statement

Definition

This is a statement is a financial statement that documents the amount of cash that is entering and leaving an organization.

This is a statement used to represent all the sources of inflow and outflow of funds of a company within a period.

Objective

It is used to depict the cash inflows and outflows at the beginning and the ending of a financial year.

It is used to depict the alterations in the financial situation of the company.

Analysis

Used for analyzing short term monetary goals.

This is used for planning the long term financial objectives.

Representations

It represents the cash inflows and outflows of a company.

It represents the sources of funds and their applications.

Accounting type

This follows a cash basis.

This follows an accounting basis.

Effect

This helps the company to understand the net cash flow.

This helps the company to understand the changes in working capital.

What is Cash Flow Statement?

A cash flow statement is a financial statement that documents the amount of cash that is entering and leaving an organization. It represents the cash inflows of an organization from its various business operations and cash outflows that are paid for different activities.

Objectives of Preparing Cash Flow Statement

The objectives of preparing a Cash Flow Statement are as follows:

  • To measure the cash inflows and outflows of a company that involves different business activities.
  • To help the organization’s management to take financial decisions for the future based on the data presented in the statement.
  • The data is necessary for the classification of the cash flow activities like operating activities, financial activities, and investment activities.
  • For conducting a detailed financial assessment of the company and understand its liquidity.
  • Creditors use the statement to analyze the amount of cash a company has to fund its operating expenses.

Cash Flow Activities

The three types of cash flow activities are:

  1. Operating activities – These activities include all the transactions related to operational activities. It depicts the company’s income from its products or services, which falls under the net profit or net loss. These activities also include income tax payments, interest payments, salary, rent, payments made to suppliers, etc.
  2. Investment activities – This section of the cash flow statement include the money invested in equipment and property. These activities can also include loans given to vendors, selling an asset, money received from customers, mergers, and acquisitions, etc. Cash receipts from selling off fixed assets and cash paid for contracts with other companies are also considered investment activities.
  3. Financing activities – These activities include the different areas where cash has been spent on financing the business. These will include money paid to the company’s shareholders and cash sources from banks or investors. This data is used by the financial analysts to calculate the money the company has paid out through dividends.

What is Fund Flow Statement?

The fund flow statement is a report which is used to represent all the sources of inflow and outflow of funds of a company within a specific time period. The statement depicts all the fund flow activities that may be irregular to assess the company’s finances. This statement analyses the different sources of funds and their utilization.

Objectives of Preparing Fund Flow Statement

The objectives of preparing a Fund Flow Statement are:

  • It is used by the company’s financial managers to understand the difference between two balance sheets and compare them.
  • To understand where the cash is being spent and where it is being received.
  • To analyze the amount of cash received from long term funding sources raised by debentures, shares and selling out fixed assets.
  • It is used to determine the changes in the networking capital between the start and the end of an accounting period.

Key Difference between Fund Flow and Cash Flow

Here are some key difference between cash flow and fund flow statements:

  • The fund flow statement is based on the concept of working capital, whereas the cash flow statement is based on cash which is only one of the elements of working capital.
  • The fund flow statement provides the details of funds movements, whereas cash flow statement provides the details of cash movements.
  • Fund flow statement considers the movement of the funds as defined in terms of net working capital, whereas the cash flow statement considers only the actual movement of funds.
  • In fund flow statement, net increase or decrease in working capital is recorded while in cash flow statement; individual item involving cash is taken into account.
  • Funds flow statement is started with the opening cash balance and closed with the closing cash balance records only cash transactions, whereas cash flow statement is started with the opening cash balance and closed with ht closing cash balance while there a no opening or closing balances in Funds Flow Statement.

Conclusion

After understanding the differences between fund flow statement and cash flow, it can be observed that the cash flow statement is more widely used and is popular among investors. It helps them understand how much a company is earning and how much they are spending. Similarly, a fund flow statement helps to set up a capital budget that will be useful for taking financial decisions in the future.


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