The Difference Between Fund Flow Statement and Cash Flow Statement
When it comes to managing finances, business owners and accounting professionals rely on various financial statements to determine the financial health of a company. Two of the most important financial statements that companies use are the fund flow statement and cash flow statement. Although they may appear similar, understanding the key differences between these two statements is essential in making informed financial decisions.
What is a Fund Flow Statement?
A fund flow statement is a financial statement that presents information about the inflow and outflow of funds during a particular period. Generally, fund flow statements are created to provide information on changes in working capital and long-term capital of an organization. The purpose of a fund flow statement is to analyze how funds move within a company during a specific period and to identify the sources and applications of these funds.
Fund flow statements are usually categorized into three major sections: sources, applications, and net change. The sources section includes funds that come in from various sources, such as investors, stockholders, and loans. Meanwhile, the applications section includes expenses like purchases, investments, and payments. Finally, the net change section shows the overall movement of funds during a specific period.
What is a Cash Flow Statement?
A cash flow statement is a financial statement that presents a company’s cash inflow and outflow during a particular period. Generally, cash flow statements are created to provide information on the liquidity or cash position of an organization. The purpose of a cash flow statement is to analyze how cash moves within a company during a specific period and identify the sources and uses of cash.
Cash flow statements are typically divided into three major sections: operating activities, investing activities, and financing activities. The operating activities section shows the funds generated or used by the company’s core operations. The investing activities section shows how the company invests in its own growth or divests assets. The financing activities section shows how the company raises capital or pays back debts.
The Key Differences
The primary difference between a fund flow statement and a cash flow statement is that the fund flow statement deals with both short-term and long-term capital. It analyses the movement of these funds between sources and applications. On the other hand, a cash flow statement focuses on the company’s liquidity position and the inflow and outflow of cash.
Another significant difference between fund flow statements and cash flow statements is that fund flow statements do not consider non-cash items. Fund flow statements only deal with actual funds and exclude any non-cash activities such as depreciation or amortization, while cash flow statements include these activities.
Conclusion
In summary, while both fund flow statements and cash flow statements provide insight into a company’s financial position, they have different objectives and uses. Fund flow statements provide an overview of both short-term and long-term capital movements within a company, while cash flow statements focus solely on the cash position of a company. Understanding the key differences between these two statements is essential in making informed financial decisions.
Table difference between fund flow statement and cash flow statement
| Fund Flow Statement | Cash Flow Statement | |
|---|---|---|
| Meaning | Shows the movement of fund in different activities within an organization. | Shows the inflow and outflow of cash during a period of time. |
| Objective | It helps to assess the financial position of an organization in terms of its fund flow. | It helps to analyze the liquidity position of an organization in terms of its cash inflow and outflow. |
| Components | It consists of two parts – Sources of Funds and Applications of Funds. | It consists of three parts – Operating Activities, Investing Activities, and Financing Activities. |
| Focus | It focuses on the change in the working capital of an organization. | It focuses on the change in cash and cash equivalents of an organization. |
| Use | It is used to identify the areas where funds are flowing in and out and to plan for future financial needs of an organization. | It is used to analyze the liquidity and cash position of an organization and to make decisions related to investments and financing. |