Skip to main content

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

Image
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

Comments

Post a Comment

Popular posts from this blog

Why Small Firms Should Consider Gen Payroll Software?

By Arpit Kulshrestha
Businesses in this competitive era would be required to manage the payroll. Payroll software has multiple operations such as paying employees, following tax laws, managing employee benefits, filing important documents, and keeping accurate records. Businesses that manage tasks manually or with spreadsheets can result in inappropriate compliance and issues, wasting time in doing operations. Gen Payroll software arrives to manage payroll with accuracy and resolve the issues that come therein. The merits and demerits of Gen Payroll software are mentioned below. Gen Payroll Software Gen Payroll is a payroll management software made by SAG Infotech . It eases and automates the process of payroll. The software’s features are tracking employee attendance, calculating salaries, ensuring compliance with laws like PF (Provident Fund), ESI (Employee State Insurance), and TDS (Tax Deducted at Source), as well as generating payslips. Businesses, whether small or large, can use this software. ...
2 comments
Read more

How ITR Software Assists Individuals in Filing Tax Returns

By Arpit Kulshrestha
Every assessee's process of income tax return (ITR) filing is significant, as it contributes to Indian's economy. The Income Tax Department has made efforts to facilitate this approach in recent years, but numerous people still see themselves steering a difficult financial system, multiple tax deductions, miscellaneous exemptions, and changing tax laws. This complexity can turn what must be an easy task into a significant challenge. In this context, income tax software evolves into an important partner, presenting a useful variety of accuracy, efficiency, and reassurance. The software enables return filing that permits taxpayers to handle their financial responsibilities when complying with the law. 1. Accurate Tax Calculations An incorrect income tax calculation of taxes could result in messages from the Income Tax Department or missed refunds. The tax software helps in finding taxable income and tax deductions that you may be allowed, like insurance or home loans. The co...
Post a Comment
Read more

A List of Top Chartered Accountant Software in India

By SAG InfoTech Pvt. Ltd.
Here, we introduce Genius as a helpful tax compliance software for chartered accountants in India. As we know, the taxation system is vast, with several taxes levied by the Indian government in the form of income tax, TDS, wealth tax, etc. So, instead of e-filing that many taxes, the need for software arises, which can e-file several taxes at once. SAG Infotech's developer team always gives new updates to the taxation industry. Genius Tax Software It is a complete package with facilities like Gen BAL, Gen IT, Gen CMA, Gen Form Manager, Gen e-TDS and AIR. Also, It provides maintenance aids of the database containing information of clients such as their address and telephone directory, partner’s details and signatory details. With Genius, one can also grow with your business.  Genius is an unlimited tax return filing software for clients in such a way that one can backup, restore data set passwords, etc. While the help option gives a solution for any of your problems. Another fa...
Post a Comment
Read more