difference between cash flow statement and fund flow statement
The difference between a cash flow statement and a fund flow statement lies in the information they provide and the purpose for which they are prepared.
1. Cash Flow Statement:
A cash flow statement is a financial statement that shows the inflows and outflows of cash within a specific period. It provides insights into the sources and uses of cash, helping to assess the cash position and liquidity of a company. The cash flow statement mainly focuses on cash transactions, including operating activities (such as sales and expenses), investing activities (such as investments in assets or divestitures), and financing activities (such as borrowing or repaying debt). It analyzes the actual movement of cash in and out of the business.
2. Fund Flow Statement:
A fund flow statement highlights the changes in the financial position of a company over a particular period. It focuses on the sources and applications of funds rather than just cash. Funds, in this context, refer to working capital, long-term capital, and accumulated profits. The fund flow statement primarily aids in analyzing the changes in the working capital position between two balance sheet dates. It provides insights into various activities, such as the inflow and outflow of working capital, capital investments, changes in long-term liabilities, shareholder equity, etc.
In summary, the key differences between a cash flow statement and a fund flow statement are:
- Cash flow statement focuses on cash transactions, while a fund flow statement focuses on funds (working capital, long-term capital, etc.).
- Cash flow statement tracks and analyzes the movement of actual cash in and out of the business, whereas a fund flow statement analyzes the changes in the financial position of a company.
- Cash flow statement categorizes activities into operating, investing, and financing activities, while a fund flow statement focuses on sources and uses of funds.
To prepare a cash flow statement, you would start with the net income from the income statement and make adjustments based on cash transactions. You would take into account changes in accounts receivable, accounts payable, inventory, depreciation, and other non-cash items.
To prepare a fund flow statement, you would start with the opening balance of working capital and make adjustments based on changes in current liabilities, current assets, long-term liabilities, and equity. You would analyze changes in working capital and determine the sources and uses of funds.
Both statements are important tools for financial analysis and understanding the cash position and financial health of a company.