Introduction to Cash Flow and Fund Flow
Both Cash Flow and Fund Flow are two essential apparatuses to measure the financial health or position of a business or company.
Cash Flow and Fund Flow are two completely different statements that are required for running a business and analyzing its shortcomings. Though both of them are closely related, their purposes are entirely different.
Students of commerce need to learn the difference between Fund Flow and Cash Flow to get a fair idea about this accounting concept.
What is Cash Flow?
It minutely records all the cash (or cash-like assets) inflows and outflows of a company within a specific period. It is divided into three categories.
Cash Flow From Operating Activities- Cash generated from the core or general activities of a company is accounted for in this category.
Cash Flow From Investing- All the investments made by the company (like buying new equipment) will be listed in this section.
Cash Flow From Financing- This category records all the transactions including proceeding from new debts, dividends paid to investors, etc.
Companies generally acquire an inflow of cash from selling products, providing services, rent, receiving interest on investments, selling assets, etc.
The outflow of cash occurs from paying back loans, making purchases, paying salaries, sharing dividends, etc.
What is Fund Flow?
Fund Flow records the movement of the cash flow of a company. It effectively keeps track of the net cash inflows and outflows of financial funds. It also states if a company has made any out-of-character operation like irregular expenses.
Fund flow is extremely essential for investing purposes of a company. However, for investing aspects, Fund Flow does not provide the cash position of a company, for that matter, cash flow is required.
Difference Between Cash Flow and Fund Flow
The following table elucidates the cash flow and fund flow difference clearly to clear the concept.
Difference Between Cash Flow Statement and Fund Flow Statement
Fund flow and cash flow both are recorded through a statement which is called Fund Flow Statement and Cash Flow Statement respectively.
Hence, once you understand the basic difference between cash flow and fund flow, it will be easier for you to comprehend the overall cash flow mechanism of an organization.
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Significant Differences Between Cash Flow and Fund Flow
The cash flow statement is one of four financial statements that every investor examines to evaluate a company's financial status. In contrast, the money flow statement is not a financial statement.
The cash flow statement is generated so that the company's net cash flow may be determined at the end of a specific period. A money flow statement is created to show the sources and uses of funds over a specific period, as well as how that "change in funds" affects the company's working capital.
A cash basis of accounting is used to generate the cash flow statement. The fund flow statement, on the other hand, is generated using the accrual accounting method.
The cash flow statement is used to budget for cash. For capital budgeting, a fund flow statement is employed.
FAQs on Difference Between Cash Flow and Fund Flow
1. What are the Components of the Fund Flow Statement?
Mainly Fund Flow has six components. These are- current assets, fixed or permanent assets, current liabilities, capital or long-term liabilities, provision of tax and proposed dividend.
2. What is Cash Flow Analysis?
This is an analysis of all the cash inflows and outflows of a company during a specific period. A cash flow analysis takes into account all the cash receipts and paid expenses of a company during that period. It is usually used to prepare a company’s financial reports.
3. Is Cash Flow and Fund Flow the Same?
Some may tend to confuse between these two terms, but they are certainly not similar. While cash flow records the cash inflows and outflows of a company, fund flow gives accounts of all the fund's inflow and outflow of a company.
4. What is the Inflow and Outflow of Cash?
Cash inflow refers to the amount going into business, like from sales, investments, etc. Outflow of cash means the amount of money a company disburses. For a healthy business, cash inflow has to be higher than cash outflow.
5. What is Cash Flow?
Cash flow refers to the total cash generated by the firm in a given accounting period and is calculated as the sum of cash from operations, cash flow from financing, and cash flow from investing activities, whereas fund flow, records the movement of cash in and cash out of the company over a given period. The cash flow statement is one of the four main financial statements that every investor should review, and it is highly common and valuable when determining a company's liquidity condition.
6. What do you mean by the statement of Cash Flow?
A Statement of Cash Flow is an accounting record that details a company's incoming and outgoing cash and cash equivalents. It aids in determining the organization's availability of liquid funds within a certain accounting period. As a result, it accounts for a company's financial condition and indicates its effectiveness in managing its cash and liquidity position. Furthermore, it divides company activities into operating, investment, and finance activities. This delineation aids in determining a company's profitability as a result of each of these activities. It also allows stakeholders such as investors, shareholders, and creditors to estimate the level of risk and projected return from a business.
7. What are the precautions one should take during a thunderstorm?
Following are the precautions that one should take during a thunderstorm:
During a thunderstorm, it is not advisable to seek cover behind a solitary tree. If you are near a forest, you can seek refuge under a tiny tree.
During a thunderstorm, It is not appropriate to lie on the ground.
An umbrella with a metallic rod should not be used or carried.
At that moment, people should avoid going near windows and doors.
It is not advisable to seek refuge in an open garage, metal shed, or storage shed.
It is best to take refuge in a car awaiting a bus.
During a thunderstorm, It is not advisable to remain in the water. People should attempt to enter a structure as soon as feasible.
8. What are the basic steps to prepare the Cash Flow Statement(CFS)?
The basic procedures for preparing a CFS are as follows:
Take the opening cash and bank balance available at the start of the corresponding accounting year.
Add to it all the incoming cash from various sources, such as cash sales of goods or services, proceeds from the sale of assets or investments, monies obtained from the issuance of shares or bank loans, and so on.
Subtract cash outflows such as salary, dividends, rent, insurance, loan repayment, stock repurchase, taxes, and so on. Deduct any money invested in business projects or given as a loan.
The net amount thus calculated is the amount of cash in hand still held by the corporation.
9. Where can I find notes and questions on the difference between Cash Flow and Fund Flow?
Vedantu provides students with notes and questions on Cash Flow and Fund Flow. This contains topics like definitions of cash flow and fund flow, their differences, cash flow statement and steps to prepare it, and many more. The content on Vedantu is created by teachers who are experts in their fields. Furthermore, the information is organised in such a way that students will be able to learn and remember the concepts more easily. Vedantu also offers study materials and a variety of competitive exams to students in grades 1 through 12. The material includes notes, important topics and questions, revision notes, and other material. All of these resources are free to use on Vedantu. To access any of these materials, students must first register on the Vedantu website. You can also join up using the Vedantu smartphone app.