Cash Flow and Fund Flow Differences
Cash flow refers to the overall cash generated by the firm in a specific accounting period and is calculated as the sum total of cash from operations, cash flow from financing and cash flow from investing activities, whereas, the fund flow of the company records movement of the cash in and cash out from the company during the specified period of time.
Cash flow and fund flow are completely different statements that have varied scopes and serve different purposes.
- The cash flow statement is one of the four important financial statements every investor should look at, and it is quite prevalent and useful when one wants to know about the liquidity position of a company.
- On the other hand, the fund flow statement talks about the financial position of a company in a given period of time. It talks about sources of funds and the application of funds.
Cash Flow vs Fund Flow Infographics
Key Differences Between Cash Flow and Fund Flow
- The cash flow statement is one of the four financial statements that every investor looks at to understand the financial position of a company. The fund flow statement, on the other hand, isn’t a financial statement.
- The cash flow statement is prepared so that at the end of a particular period, the net cash flow of the company can be calculated. Fund flow statement is prepared to see the sources and uses of funds during a particular period and how that “change in the funds” affects the working capital of the company.
- The cash flow statementCash Flow StatementStatement of Cash flow is a statement in financial accounting which reports the details about the cash generated and the cash outflow of the company during a particular accounting period under consideration from the different activities i.e., operating activities, investing activities and financing activities. is created by following a cash basis of accounting. The fund flow statement, on the other hand, is created by following the accrual basis of accounting.
- The cash flow statement is used for cash budgetingCash BudgetingCash budget refers to cash inflows and outflows estimations made by a company's management over a given period to evaluate whether the business has adequate cash & cash equivalents to meet its operational needs in the coming future.. Fund flow statementFund Flow StatementFund flow statement is a statement that compares the two balance sheets by analyzing the sources of funds (debt and equity capital) and the application of funds (assets) and its reasons for any differences. It helps the company see through where their money has been spent and from where they have received the money (long-term funds raised by issues of shares, debentures, and sale of non-current assets). is used for capital budgeting.
- The cash flow statement is prepared to see the short-term effect of cash flow. Fund flow statement is prepared for the long-term purpose.
If we compare between cash flow and fund flow, cash flow is more prevalent among investors and more used. But if we look at separately, we will see that both of them serve a meaningful purpose.
Cash flow serves a company and its investors and potential investors by showing exactly how much cash is getting injected into the company and how much cash is being paid. On the other hand, fund flow statement helps a company set up a capital budgetCapital BudgetCapital budgeting is the planning process for the long-term investment that determines whether the projects are fruitful for the business and will provide the required returns in the future years or not. It is essential because capital expenditure requires a considerable amount of funds. and take necessary steps regarding the specific items which affect the “sources & uses of funds” in the company.
This article has been a guide to cash flow vs. fund flow. Here we discuss the top differences between cash flow and fund flow statements along with infographics and comparative table. You may also have a look at the following articles to learn more about accounting –