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Difference Between Cash Flow and Fund Flow Statement

December 13, 2014 By Surbhi S —5 Comments

Cash Flow statement shows the changes in the cash position (Inflows and outflows) of
a firm. It is an analytical reconciliation statement which explains the reasons for the
differences between the opening and closing cash balances over a period. On the other
hand, Fund Flow statement is a statement that shows the ups and downs of the
financial position or the changes in working capital of the entity between the two
financial years.
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The financial position of any company can be better understood with the help of a cash
flow statement and fund flow statement, along with the Balance Sheet and Income
statement. These two statements helps stakeholders to know the sources and
application of  cash or funds. So, take a glance of the given article to understand the
difference between cash flow and fund flow statement.

Content: Cash Flow Vs Fund Flow

1. Comparison Chart
2. Definition
3. Key Differences
4. Conclusion

Comparison Chart

BASIS FOR
CASH FLOW
COMPARISON
A cash flow statement is a
statement showing the inflows
Meaning
and outflows of cash and cash
equivalents over a period.
Purpose of To show the reasons for
Preparation movements in the cash at the
FUND FLOW
A fund flow statement is a statement
showing the changes in the financial
position of the entity in different
accounting years.
To show the reasons for the changes
in the financial position, with
 beginning and at the end of the respect to previous year and current
accounting period. accounting year.
Basis Cash Basis of Accounting. Accrual Basis of Accounting.
Short Term Analysis of cash Long Term Analysis of financial
Analysis
planning. planning
Discloses Inflows and Outflows of Cash Sources and applications of funds
Opening and Contains opening and closing
Does not contains opening balance
closing balance of cash and cash
of cash and cash equivalents.
balance equivalents.
Part of
Financial Yes No
Statement

Definition of Cash Flow Statement

A cash flow statement shows the inflows and outflows of cash and cash equivalents.
Cash includes cash in hand and demand deposits with the banks while cash
equivalents are highly liquid investments i.e. they can be readily converted into cash
like marketable securities, commercial papers, and short-term government bonds. It
explains the changes in the cash in hand and cash at bank at the beginning and the end
of the accounting period.

Accounting standard  – 3 deals with the cash flow statement. It has been classified into
three broad categories:

Operating Activities – representing movements of money due to regular business

operations like the purchase, sale, production, etc. of goods.
 Investing Activities – representing the movement of cash due to the purchase or
sale of assets or any other investment activities of the business.
Financing Activities – accounts for the funds raised through the issue of shares
or debentures, long term loans, etc. and utilised for the redemption of shares or
debentures and payment of dividend, etc.

There are two methods of preparation of a Cash Flow Statement, they are:

Direct Method
Indirect Method

Definition of Fund Flow Statement

Funds refer to the working capital of the company, so fund flow statement is a
statement that studies the changes in the working capital of the business between two
accounting years. It shows the additions in the working capital through various sources
like issuing shares, debentures or raising loans, etc. and reduction in it through
different applications like the redemption of shares or debentures, repayment of loans,
purchase of fixed assets, etc.

Fund Flow Statement explain the reasons for the change in the working capital of the
business between two Balance Sheet dates through various Non-Current Assets and
Non-Current Liabilities, which are responsible for the increase or decrease in the
working capital. A fund flow statement displays the financial status of an organisation,
which ensures easy comparison and analysis between two accounting periods. It is
helpful in understanding the variability in the assets, liabilities and equity of the
company.

Key Differences Between Cash Flow and Fund Flow Statement

1. A statement that shows the changes in the cash and bank balance between
opening and closing dates is known as a cash flow statement while a statement
that shows the variations in the financial position between the two financial years
is known as a fund flow statement.
 2. Cash Flow Statement analyses the cash generating efficiency of the entity.
Conversely, Fund Flow Statement examines the firm’s efficiency in utilising the
working capital.

3. Cash Flow statement is a part of Financial Statement. Unlike Fund Flow Statement
which is not a part of the Financial Statement

4. Cash Flow statement is useful for a short term financial analysis of cash planning
while Fund Flow Statement is helpful to a long-term analysis of financial
planning.

5. Cash flow statement contains opening and closing balances of cash and cash
equivalents. On the contrary, fund flow statement does not contains opening and
closing balances of cash and cash equivalents.

6. Cash Flow statement uses the Cash basis of accounting. On the contrary, Fund
Flow statement uses the Accrual Basis of Accounting.

7. Cash Flow statement shows the inflows and outflows of cash, but Fund Flow
Statement shows the sources and application of funds.

Conclusion

There are so many differences between the Cash Flow and Fund Flow,  each essential
for the sustenance of the firm. They are useful in analyzing the position of cash and
funds in the business. Both of them enabled the users of the financial statements to
project various plans & policies, liquidity, and solvency of the company.

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Filed Under: Finance

Comments

Mr. N chali says

May 19, 2016 at 10:00 am

Great explanation

Reply

Vijay says

July 7, 2016 at 2:34 pm

Explained very succinctly. Thanks.

Reply

Puja garg says

July 20, 2016 at 8:30 am

Nycc one.

Reply

Harish says

November 12, 2016 at 8:07 am

Explanation is superb

Reply

Mallik says

February 15, 2017 at 5:32 am

Its brief explanation on the two.

Great job
Thanks for u r valuable information.

Reply

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