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Let's Understand The Difference Between Cash Flow And Fund Flow Statement

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By Arpit Kulshrestha


Cash Flow statement reflects the differences in the cash position i.e. the Inflows and outflows of a firm. Whereas, the Fund Flow statement reflects the changes in the financial position of a firm between the two fiscal years.

We can say that the Cash Flow statement is an analytical reconciliation statement that reflects the causes responsible for the differences between the opening & closing balances of cash in a stated time-frame.

On the other side, Fund Flow Statement is a statement that depicts the upturns and downturns in the financial status or the differences in working capital of the business firm between the two financial years.

A company’s financial status can be thoroughly and precisely understood with the help of financial statements - Income statement, Cash Flow Statement, Balance sheet, Fund Flow Statement.

Although all the four reflects the financial capacities of a firm and changes in them over a period of time, all are extremely different from each other. Fund Flow Statement and Cash Flow Statement sounds similar to a common man, however, both of the two are also completely different terms and reflects different factors of the firm.

This article explains the difference between these two statements and how they help stakeholders know the sources and application of cash and funds, with the help of definition, comparison chart, key variations and conclusions.

Definition 
Cash Flow Statement
The cash flow statement, also known as the statement of cash flows, is a summarised financial statement about the amount of cash and cash equivalents coming to and going out of a business entity or the inflows & outflows of cash and cash equivalents.
The cash flow statement (CFS) signifies the proficiency of a company in managing its cash position i.e. how nicely the company is generating cash to set off its debt responsibilities and meet its operating expenditures.

The cash flow statement has been a mandatory element of a company's financial reports since 1987 and accompanying the balance sheet and income statement since then.

A cash flow statement reflects Cash i.e. cash in hand, cash equivalents and the demands deposits with the banks.

Cash equivalents are those investments which are highly liquid i.e. they can be converted into cash very readily. Examples include commercial papers, marketable securities, and short-term government bonds.

In short, Cash Flow Statements reflects the changes in the cash which is in hand as well as bank at the start and end of the accounting period.

CFS Can Be Prepared Through Two Methods - Direct Method And An Indirect Method.

Accounting standard -3 governs the cash flow statement. The activities are divided into three categories. 
  • Operating Activities – are the regular business activities/operations due to which movement of cash takes place. Examples include the purchase of goods, production of goods and sales of goods.
  • Investing Activities – are the investment activities/operations due to which movement of cash takes place. Examples include the purchase of assets, sale of assets, etc.
  • Financing Activities – are the financial transactions/operations due to which movement of cash takes place. Examples include funds raising by issuing shares or debentures, long term loans, and utilising the same for shares’ redemption, dividend payout and so on. 
Fund Flow Statement
Company’s working capital is known as Funds, therefore, fund flow statement is a representation of the changes in the company’s working capital between two accounting years. 
FFS explains the inclusions/additions in the working capital of the company by the way of issuing shares, availing loans, issuing debentures & so on and also the withdrawal/reduction in the working capital due to redemption of shares, repayment of loans, the redemption of debentures, purchase of fixed assets and so on. 

Fund Flow Statement is an explanatory statement that showcases the factors behind the changes in the working capital of the business on two Balance Sheet dates. Different Non-Current Liabilities and Non-Current Assets are responsible for the decrease and increase in the working capital of an entity.
A fund flow statement showcases the financial competence of a business and helps in an easy evaluation & comparison of data of two different accounting periods. Besides, it showcases an easy & clear picture of the fluctuations in the liabilities, assets and equities of an organisation.

Comparison Chart ( CFS vs FFS)


Key Variations Between Cash Flow Statement And Fund Flow Statement
Presentation
  • Cash Flow statement is a presentation of the cash inflows and outflows.
  • Fund Flow Statement is a presentation of the sources of funds and the application of funds.
Reflection of Changes
  • Cash Flow Statement is a reflection of changes in the cash and bank balance between starting and ending dates.
  • Fund Flow Statement is a reflection of changes in the financial status of a company between the two fiscal years. 
Encompassment
  • Cash flow statement encompasses the opening and closing balances of cash & cash equivalents.
  • Fund flow statement does not encompass the opening and closing balances of cash & cash equivalents.
Interpretation 
  • Cash Flow Statement interprets the cash-generating productivity of the entity. Fund Flow Statement interprets the efficiency of the firm to utilise the working capital.
Basis of Accounting
  • Cash basis of accounting is used in the Cash Flow statement.
  • Accrual Basis of Accounting is used in the Fund Flow statement.
An Element of Financial Statement
  • Cash Flow statement is an element of the Financial Statement of a company.
  • Fund Flow Statement is not an element of the Financial Statement of a company.
Usage For Analysis
  • Cash Flow statement is used for a short term financial analysis of cash planning.
  • Fund Flow Statement is used for a long-term analysis of financial planning.
Conclusion 
Both the terms hold greater value for a business firm. Although, both the terms are different from each other, they play an important role in identifying the fiscal patterns and performance of the company. Both the statements helps users in the better planning of liquidity, projects and solvency of the organisation.

Let's understand the difference between cash and fund flow statements through Gen BAL software. Our Balance Sheet Software is capable to import data directly from Tally, Busy, MS Excel and other popular accounting and tax software. 
Location: Jaipur, Rajasthan, India

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