Difference Between Cash Flow And Fund Flow

Cash and funds are crucial for the proper operation of any firm and are frequently confused. The key distinction between cash and fund is that cash is the physical money available to every firm.

A fund, on the other hand, is a broader phrase that refers to the overall financial resources available and is referred to as a company's working capital. Companies prepare cash flow statements and fund flow statements to account for and analyze changes in cash and working capital.

The difference between cash flow and fund flow statements stems from the conceptual distinction between cash and funds, and both accounts are studied in different ways to measure financial metrics and develop future strategies. One of the major indicators for identifying strong long-term equities is an examination of a company's cash flow and fund flow statement.

Before delving into the differences between cash flow statements and fund flow statements, let's first examine the meaning and applications of each.

Cash Flow Statement

A cash flow statement is an important financial document that shows the entrance and outflow of cash in a company. The cash flow applicability statement is one of the most significant pieces in fundamentally analyzing a firm.

One of the key goals of a cash flow statement is to describe changes in the company's cash position over a specific time period and whether or not a company is making profits that can be reflected in cash.

In other words, a cash flow statement is based on the cash foundation of accounting and records transactions when actual cash enters and exits the business during a defined time period, which can be a year, a half year, or even a quarter.

It differs from profit and loss accounts in that it depicts the financial success of a company over a specific period by taking into account accruals and deemed payments, such as debtors, that have not yet been turned into cash.

The cash flow statement is divided into three heads:

Financing activities

Financing operations describe the company's capital structure and include any cash earned or incurred through financial transactions such as dividend payments, dividends received, loan repayment, share issuance, bond issuance, or loan taking.

Investing activities

Any cash inflow or outflow from activities involving the purchase and sale of fixed assets will be accounted for as cash flow from investing activities.

Operating activities

It conveys the income generated or expenses incurred by the company's major operating activities. Operational activities are those used in the day-to-day operations of the firm, such as manufacturing, sales, marketing, and hiring.

In such instances, the company's cash inflow would come from sales of goods and services, cash realised from debtors, or cash acquired in any other way.

Cash outflow from operating activities, on the other hand, includes cash paid as salary, cash paid to creditors, and cash paid for expenses.

The non-cash transaction that had been deducted from the income and loss statement would be reinstated.

The cash flow statement is one of the essential fundamental measures used to examine a firm. It helps us measure a company's liquidity status and tells us how well a company converts its revenues and profits into cash.

Fund Flow Statement

As we all know, funds include cash and cash equivalents, as well as other assets that add value to the company's operations. It is referred to as the company's working capital. A fund flow statement is a statement that records the changes in the company's working capital over a certain time period.

The goals of money flow analysis are to track, measure, and analyse changes in an organization's working capital and to assist the corporation in tracking any inconsistencies in finances. The fund flow statement makes it easier to measure investor sentiment because it tracks movements in multiple asset types.

Fund flow statement analysis is used by investors to analyse a company's fund flow statement and to be well aware of the performance of the various asset classes of the company they are investing in, as a fund flow statement reveals a company's financial status by comparing two different accounting periods.

Let's Understand the Difference between a Cash flow Statement and Fund Flow Statement

Meaning

Cash Flow Statement - At a given period, cash flow represents the arriving and exiting of cash and cash equivalents from a business.

Fund Flow Statement- The fund flow statement tracks the changes in working capital over two time periods.

Accounting treatment

Cash Flow Statement - Cash flow statement is based on the cash basis of accounting, and transactions are recorded only when it involves cash and cash equivalents.

Fund Flow Statement- The fund flow statement follows the accrual basis of accounting, where transactions are recorded as and when they take place.

Application

Cash Flow Statement- The cash flow statement played a crucial role in the formulation of future plans by accounting for the inflow and outflow of cash in the business.

Fund Flow Statement- A fund flow statement signifies the changes in the working capital of a company and helps investors gauge the financial standing of a company.

Time Duration

Cash Flow Statement- A cash flow statement analyzes a business's liquidity position in the short-term.

Fund Flow Statement- A fund flow statement analyzes a company's financial standing in the long-term.

Usage

Cash Flow Statement- The preparation of a cash flow statement and its analysis is mainly used in cash budgeting.

Fund Flow Statement- The preparation and analysis of fund flow statements are used by businesses for capital budgeting.

Statutory requirement

Cash Flow Statement- It is mandatory for companies to include a cash flow statement in annual financial statements.

Fund Flow Statement- It is not statutorily mandatory for companies to include fund flow statements in their annual financial statements, but they can do so to increase investors' confidence.