Key Difference – Cash Flow vs Fund Flow Statement
The cash/fund availability is a vital aspect for the routine survival of the business. Cash flow statement and fund flow statement are two key statements prepared by companies. However, these two statements are often confused since the purpose of both is to demonstrate the cash/fund availability in the organization. The key difference between the cash flow statement and fund flow statement is that cash flow statement is a statement that records the cash inflows and outflow for a financial year whereas fund flow statement is a statement used to assess the change in financial position of a company between two accounting periods that shows the inflow and outflow of funds.
What is a Cash Flow Statement?
Cash flow statement is a statement that records the cash inflows and outflow for a financial year. Cash is one of the most important assets to a company for the smooth flow of routine operations and is the most liquid. Liquidity is vital for both survival and long term profitability of the business. Transactions in the cash flow statement are recorded upon a cash receipt or a payment i.e., in cash basis.
There are 3 main types of activities recorded in the cash flow statement
Cash Flow from Operating Activities
This section records the cash resulting from routine operational activities.
E.g. Sale of goods, cash received from debtors
Cash Flow from Investing Activities
Cash resulting from purchase or sale of assets are recorded as investing activities.
E.g. Cash received from sale of plant and equipment, short term borrowings
Cash Flow from Financing Activities
In this section of the statement the cash inflow and outflow received from investors are recorded.
E.g. Interest paid on loan, dividend paid
Given below is the format of the cash flow statement.
Once the cash balance is identified, the company can make decisions regarding management of cash. If there is a cash surplus (positive cash balance), short term investments can be considered to earn extra income. If there is a cash deficit (negative cash balance) there is a need to consider burrowing funds in order to continue operations in a smooth manner.
What is a Fund Flow Statement?
Fund flow statement is a statement used to assess the change in financial position of a company between two accounting periods that shows the inflow and outflow of funds. This statement is prepared in an accrual basis and records the sources and applications of funds.
These refer to the fund inflows to the organization.
E.g. issue of shares, sale of fixed assets
Applications include the fund outflows from the organization.
E.g. Redemption of shares, purchase of fixed assets
Unlike the cash flow statement, fund flow statement is not a part of published financial statements; thus are mainly prepared for internal purposes. It displays the financial status of an organization and function as a useful comparison tool between two accounting periods. It also assists in understanding the variability in the assets, liabilities and equity of the company.
What is the difference between Cash Flow and Fund Flow Statement?
Cash Flow Statement vs Fund Flow Statement
|Cash flow statement is a statement that records the cash inflows and outflow for a financial year.||Fund flow statement is a statement used to assess the change in financial position of a company between two accounting periods that shows the inflow and outflow of funds.|
|Basis of Accounting|
|The recording of transactions are conducted in cash basis in cash flow statement.||The recording of transactions are conducted in accrual basis in fund flow statement.|
|Cash inflows and outflows are reported in cash flow statement.||Fund flow statement reports sources and applications of funds.|
|Cash flow statement is a published financial statement, thus is used by a number of external stakeholders.||Fund flow statement is prepared for internal purpose, such as primarily used by managers.|
Summary – Cash flow Statement vs Fund Flow Statement
The difference between cash flow and fund flow statement mainly depends on the components associated with each statement. Cash flow statement records the inflows and outflows of cash while fund flow statement reports the sources and applications of funds. These statements are an indication of the cash position and financial status of the organization respectively. Net cash position and fund position becomes vital for all types of organizations for planning future operating and investment activities.
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