Difference Between Cash Flow And Fund Flow

In financial statements, the cash flow statement refers to a difference in the assets and equivalents of a business from one cycle to the next. However, the movement of funds has two distinct definitions. One is for purposes of accounting and the other is for purposes of savings. The money related situation of any organization can be better perceived with the assistance of an income proclamation and reserve stream articulation, alongside the Balance Sheet and Income explanation. These two articulations cause partners to know the sources and use of money or assets.

Definition of Cash Flow: A cash flow statement presents the cash and cash equivalent inflows and outflows. This figure, one of a company’s key statements, indicates the inflow and outflow of real cash (or cash-like assets) from its operations. There are many sources of cash flow in an organization or company which may be categorized as:

  • Cash Flows from Operating activities: It represents the movement of cash from the core operations of a business.
  • Cash Flows from Investment Activities: It reflects the cash movement due to the acquisition or selling of the company’s properties or some other investment activities.
  • Cash Flow from Financing Activities: This category covers all transactions involving debtors, such as new debt proceeds or investor dividends.

Companies or organizations get inflows of money income from selling merchandise, offering types of assistance, selling resources, winning enthusiasm on speculations, lease, taking out credits, or giving new offers. It can come about because of making buys, repaying advances, extending activities, paying compensations, or circulating profits.

Definition of Fund Flow: Funds refer to the company’s working capital, so fund flow analysis is an analysis that analyses the changes between two accounting years in the business’ working capital. As required, accountants generally used the statement of fund flow to disclose any change in the networking capital of a company, or the difference between assets and liabilities, for a given period of time. Investors use the details on the movement of funds to decide where money should be invested.

There are two types of inflow of funds in a business

  • Funds generated by the business operations
  • Long term funds raised by issuing shares or sale of fixed assets.

Actually, the fund flow statement explains the explanations for the change within the assets of the business between two record dates through various Non-Current Assets and Non-Current Liabilities, which are to blame for the rise or decrease within the assets. The fund flow highlights the movement of money only that’s, it reflects the web movement after examining inflows and outflows of monetary funds. It’ll also identify any activity that may be out of character for the corporate, like an irregular expense.

The key difference between Cash Flow and Fund Flow:

Cash Flow –

  • Cash flow is based on the idea of cash and cash equivalent outflows and inflows over a given time.
  • Cash Flow Statement analyses the cash-generating efficiency of the entity.
  • Cash from the operations is calculated.
  • The cash flow statement is better used to consider a firm’s liquidity status while the fund flow statement is ideally adapted for long-term financial planning, which is why it is a valuable tool for investors.
  • The cash flow statement shows the short term position of the business.
  • The cash flow statement contains the opening and closing balances of cash and cash equivalents.
  • The cash flow statement is a more accurate instrument than the metrics businesses are using to dress up their earnings, such as earnings before interest, taxes, depreciation, and amortization (EBITDA).
  • The cash flow statement indicates the fund’s transfer at the start and end of an accounting period.
  • The Cash Flow statement shows the inflows and outflows of cash.

Fund Flow –

  • Fund flow is based on the concept of changes in working capital over a period of time.
  • Fund Flow Statement examines the firm’s efficiency in utilizing the working capital.
  • Fund from the operation is calculated.
  • The fund flow statement is capable of defining the revenue flows and their uses, and the cash flow statement begins by looking at the existing cash amount and how it relates to the closing cash balance.
  • The fund flow statement shows the position of the business in the long term.
  • The fund flow statement does not include cash and cash equivalent balances for opening and closing.
  • Using the fund flow statement in investment today is more useful; investor sentiment can be measured as it applies to various asset groups.
  • The cash flow statements display improvements in the business ‘ financial condition between past and present accounting periods.
  • Fund Flow Statement shows the sources and application of funds.

The argument about fund balance is the earlier version of the argument about cash flow. The cash flow statement is more detailed and outlines a company’s various cash flows, rather than just concentrating on working capital. There are so many variations between the Cash Flow and Fund Flow, each of which is important for the firm’s survival. They are useful in analyzing the position of money and funds within the business. Both of them enabled the users of the financial statements to project various plans & policies, liquidity, and solvency of the corporate.


Information Sources:

  1. keydifferences.com
  2. byjus.com
  3. investopedia.com