Both Cash Flow and Fund Flow are two essential apparatus to measure the financial health or position of a business or company.
Cash Flow and Fund Flow are two completely different statements which are required for running a business and analysing 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 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 salary, 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 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.
Basis of Comparison
It shows how a company spends its cash revenue by giving a record of all inflows and outflows.
It charts the financial standing of a company. Also the source of the cash fund and application of it.
What is Measured?
The real cash or cash like assets are calculated
Only funds and capital are calculated
What it Displays?
Inflows and Outflows of hard cash
The source and application of existing funds.
To keep record of cash from initial stage to end of a specific period
The transformation of the business, from last financial quarter to existing one
The short-term position of a business
The long-term standing of a business
Difference Between Cash Flow Statement and Fund Flow Statement
Fund flow and cash flow both are recorded through a statement which are called Fund Flow Statement and Cash Flow Statement respectively.
Points of Comparison
Fund Flow Statement
Cash Flow Statement
Basis of Analysis
On broader concept of working capital
On narrower concept of cash only
States the sources of funds generation
States the opening cash balance and closing cash balance
In accessing long-range financial planning
Computes short term spending details
Working Capital Change Schedule
Changes in current liabilities and assets are shown through the movement of working capital
It shows those changes through cash flow statement itself
Portrays the reasons for change in net capital
Portrays the reasons for changes in cash flows only
Follows accrual basis of accounting
Follows cash basis of accounting
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 organisation.
Write a similar note on the difference between Trial Balance and Balance Sheet to get a better grip on this subject. For further details on this topic or other accounting topics, tune in to Vedantu’s website.
1. What are the Components of the Fund Flow Statement?
Ans. 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?
Ans. 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?
Ans. 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?
Ans. 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.
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