• Business
  • Finance
  • Banking
  • Education
  • General
  • Law
  • Science
  • IT
  • English

Key Differences

Know the Differences & Comparisons

Difference Between Cash Flow Statement and Fund Flow Statement


cash-flow-vs-fund-flow-statement
The Cash Flow Statement shows the changes in the cash position (Inflows and outflows) of a firm. It is an analytical reconciliation statement that explains the reasons for the differences between the opening and closing cash balances over a period. On the other hand, the Fund Flow Statement is a statement that shows the ups and downs of the financial position or the changes in working capital of the entity between the two financial years.

While a cash flow statement is concerned with the flow of actual or notional cash, a fund flow statement deals with cash as well as all the other items that constitute working capital. In this way, Cash Flow Analysis help in determining the cash-generating efficiency of the entity. Conversely, Fund Flow Analysis helps in ascertaining the firm’s efficiency in utilizing the working capital.

In this section, we will discuss the difference between cash flow statement and fund statement, using their format and examples.

Content: Cash Flow Vs Fund Flow Statement

  1. Comparison Chart
  2. What is Cash Flow Statement?
    • Format of Cash Flow Statement – Indirect Method
    • Format of Cash Flow Statement – Direct Method
  3. What is Fund Flow Statement?
    • Format of Fund Flow Statement
    • Format of Statement of Changes in Working Capital
    • Format of Funds from Operations
  4. Key Differences
  5. Video
  6. Example
  7. Points to Remember
  8. Conclusion

Comparison Chart

Basis for ComparisonCash Flow StatementFund Flow Statement
MeaningCash Flow Statement is the summarized statement of cash receipts and cash payments of the firm between two financial periods.Fund Flow Statement is a financial tool, designed to analyse the changes in financial position of the firm, comparing two financial years.
Basis of AccountingCash Basis of AccountingAccrual Basis of Accounting
DisclosesInflows and Outflows of CashSources and applications of funds
Tool forShort term financial analysisLong term financial analysis
ObjectiveTo explain the cash movement amidst two points of time.To explain the causes of changes in the balance sheet items, i.e. asset and liabilities between two financial year.
Opening BalanceOpening balance is presentNo opening balance
Difference in sidesIndicates the closing balance of cashIndicates the increase or decrease in working capital
Part of Financial StatementYesNo

What is Cash Flow Statement?

A Cash Flow Statement implies the statement containing cash inflows and outflows of an enterprise during a particular period of time. To prepare a cash flow statement, a financial statement of two different financial years is required.

Understanding Cash Flow

The term ‘cash flow’ is a combination of two words ‘cash’ and ‘flow’ wherein the words cash refers to the cash balance in hand and at the bank, whereas flow implies the movement of cash in and out of the organization, which can be increased or decrease. It deals with those items which involve cash transactions. Thus, it indicates the changes in the cash status of the company, be it related to receipts, payment, or disbursement.

The cash flow statement reports the Net Cash Flow. Net Cash Flow is the difference between cash inflow and cash outflow, from each activity of the business concern. When there is a change in cash position resulting in an increase in cash, it is called inflow of cash, whereas when there is a change in cash position leading to a decrease in cash position, is called outflow of cash. It involves the reconciliation of opening and closing cash balances.

The economic decision-making by the investors is based on the analysis of the company’s ability to generate cash and cash equivalents, as well as the timing and certainty of generation.

Elements of Cash

As per Accounting Standard – 3:

elements-of-cash

  • Cash: Cash in hand and demand deposits with the bank. Example: Cash in hand and cash at bank
  • Cash equivalent: Short-term highly liquid investments readily convertible into cash. Securities with a short maturity period, usually less than or equal to three months from the date of acquisition. Example: Treasury Bills, Commercial Papers, Commercial Bills, Certificate of Deposit, Call Money, etc.

Classification of Cash Flow Activities

classification-of-cash-flow-activities

  1. Operating Activities: Operating Activities are the primary revenue-earning activities of the company. It indicates the degree to which a company’s regular business operations have generated enough cash flows in order to maintain operating efficiency, pay dividends to shareholders, repay loans, invest in acquiring assets, etc.
  2. Investing Activities: Such activities involve the acquisition and sale of long-term assets and other investments, which are not covered in cash equivalents. It indicates the extent to which the company has spent money in acquiring resources that are intended to generate income and cash flows in the future.
  3. Financing Activities: Activities that cause the size and composition of the owner’s capital and borrowings of the company to change are financing activities. This ascertains the claims of shareholders on future cash flows of the company.

Calculation of Cash from Operating Activities

There are two methods for calculating cash from operating activities:method-of-calculating -cash-from-operating-activities

  • Direct Method: In this method, gross cash receipts and gross cash payments are taken into consideration, which is available through accounting records.
  • Indirect Method: In this method, operating activities are ascertained by making a number of necessary adjustments in the net profit or loss, as shown by the profit and loss account.

Format of Cash Flow Statement


Indirect Methodcash-flow-statement-format1

Direct MethodCash-flow-statement-direct-method-format

Note: It is to be noted that the format of Cash from Investing Activities and Cash from Financing Activities will remain the same, as in the case of the indirect method.

Also Read: Difference Between Income Statement and Cash Flow Statement

What is Fund Flow Statement?

Fund Flow Statement refers to a statement depicting the means by which the business gets funds and the uses of the funds, between two balance sheet dates. It is devised to assess the changes in the financial position of the firm between two different balance sheet dates. It is a record of the movement of financial assets in and out of the enterprise, for a particular time.

The basis of inclusion or non-inclusion of a financial event in the fund flow statement depends on the flow of funds. Here the term ‘flow of funds‘ refers to the changes in the company’s working capital during the cycle of business operations. In short, it is the movement indicating the change in the company’s economic resources, i.e. from a particular asset or liability to another.

To prepare fund flow statements basic financial statements i.e. balance sheets and income statements are used. Now, we will look at some important points:

  • Facilitates understanding of the changes in the structure of assets, liabilities, and capital.
  • Reconciles the sources of funds with the application of funds.
  • Indicates the total funds generated by the firm internally, as well as the total funds raised from outside sources and their application during the year.
  • Helpful to the management in the formulation of different financial policies like bonuses and dividends.

What is Fund?

Fund implies the sum of money used for financing the company’s regular operations and procuring assets for the business.

Also Read: Difference Between Cash and Fund

Format of Fund Flow Statement

Fund Flow Statement

So, there are two things we need to calculate first prior to the preparation of a fund flow statement – Changes in working capital and funds from operation.

Format of Statement of Changes in Working Capital

statement-of-changes-in-working-capital-format

Format of Funds from Operation

statement-of-funds-from-operations

Key Differences Between Cash Flow Statement and Flow Flow Statement

The difference between cash flow statement and fund flow statement is given in the points that follow:

  1. Cash Flow Statement is a statement prepared using historical data, indicating the flow of cash in and out of the firm. On the other hand, a fund flow statement is a statement that represents the analytical details relating to various sources of a fund and their application in an accounting cycle.
  2. Cash Flow Statement is related to the change in the position of cash in the business, whereas the fund flow statement deals with the change in the position of working capital between two balance sheet dates. Cash is just one of the components of working capital.
  3. While cash flow statement uses the Cash basis of accounting. On the contrary, the fund flow statement uses the Accrual Basis of Accounting.
  4. For the purpose of short-term financial planning and decision making cash flow statement is prepared, whereas a fund flow statement is suitable for long-term financial planning and decision making.
  5. Cash Flow Statement begins with an opening cash balance and it ends with the closing cash balance, which arises when sources and uses of cash are adjusted. However, the opening and closing balance are not there in the case of the fund flow statement.
  6. The cash flow statement shows the inflow and outflow of cash, whereas the fund flow statement shows the sources and uses of funds.
  7. Cash Flow Statement is helpful in explaining the cash movement amidst two points of time. In contrast, the Fund Flow Statement facilitates in explaining the causes of changes in the balance sheet items, i.e. assets and liabilities between two financial years.
  8. Cash Flow Statement is a part of the Financial Statement. Unlike Fund Flow Statement which is not a part of the Financial Statement

Video: Cash Flow Vs Fund Flow Statement

Example

Cash Flow Statement

Romys Ltd. earned a profit of Rs. 8,75,000, for the year, ended on 31.03.2021. After taking into account the information given below:
Depreciation on land and building Rs. 65,000
Depreciation on Plant and Machinery Rs. 20,000
Goodwill written off Rs. 12,500
Loss on sale of machinery Rs. 4,500

The position of current assets and current liabilities is as under:

cash-flow-question

Calculate Cash from Operating Activities.

cash-flow-statement-example1
Fund Flow Statement

Using the given details, prepare a schedule for changes in working capital and fund flow statement:

fund-flow-question

For this we need to calculate the changes in working capital first:

fund-flow-example-statement-of-changes-in-working-capital

Now we will proceed to prepare a fund flow statement:fund-flow-statement-example

Points to Remember

  • It is mandatory for listed companies to prepare and present cash flow statements.
  • SEBI Guidelines recommend the preparation of Cash flow Statements using the direct method.
  • Cash Flow related to extraordinary items is classified as arising from operating, investing, and financing activities. This may include the amount received from the insurance company, loss due to fire, etc.

Conclusion

Cash is one of the constituents of working capital. So, if there is an improvement in the position of cash which leads to the improvement in the position of funds, but vice versa is not possible. To put it simply, when there is cash inflow, it amounts to fund inflow, but the fund inflow does not prompt cash inflow.

You Might Also Like:

Balance Sheet and Cash Flow StatementDifference Between Balance Sheet and Cash Flow Statement income-statement-vs-cash-flow-statement-thumbnailDifference Between Income Statement and Cash Flow Statement Cash flow vs free cash flowDifference Between Cash Flow and Free Cash Flow cash vs fundDifference Between Cash and Fund Balance Sheet and Financial StatementDifference Between Balance Sheet and Financial Statement statement of affairs vs balance sheetDifference Between Statement of Affairs and Balance Sheet

Comments

  1. Mr. N chali says

    May 19, 2016 at 10:00 am

    Great explanation

    Reply
  2. Vijay says

    July 7, 2016 at 2:34 pm

    Explained very succinctly. Thanks.

    Reply
  3. Puja garg says

    July 20, 2016 at 8:30 am

    Nycc one.

    Reply
  4. Harish says

    November 12, 2016 at 8:07 am

    Explanation is superb

    Reply
    • Kajl says

      December 4, 2019 at 7:12 am

      Good content👍

      Reply
  5. Mallik says

    February 15, 2017 at 5:32 am

    Its brief explanation on the two.
    Great job
    Thanks for u r valuable information.

    Reply
  6. Tushar Adhvaryu says

    April 23, 2018 at 8:49 pm

    Your explanation are ultimate for beginners as well as professionals . thx.

    Reply
    • Surbhi S says

      May 11, 2018 at 3:25 pm

      Thank you guys, for appreciating Key Differences for its work. It motivates us to do better in future and provide you all the quality stuff. Keep reading 🙂 🙂

      Reply
  7. sumit kumar gupta says

    May 22, 2018 at 10:56 am

    Explaining very nice. This is very helpful for me . Key differences is better for understanding in table format. thank you for sharing this great article.

    Reply
  8. Kumar lav says

    May 24, 2018 at 7:52 pm

    I only choose this site for comparison.

    Reply
  9. RAGHU PAL says

    June 1, 2018 at 5:21 pm

    thank you so much great one..

    Reply
  10. Bhanwar Singh says

    December 14, 2018 at 10:22 am

    Thank you so much sir. This is very helpful for me.

    Reply
  11. Binu M V says

    February 27, 2019 at 9:34 pm

    good

    Reply
  12. Suresh Jacob says

    November 6, 2019 at 12:11 pm

    Good Information in this given of this article. I like it

    Reply
  13. luna says

    March 21, 2023 at 11:35 am

    Nice blog! Thanks for sharing this blog with us. I like the article and it is very helpful for me. Thanks for sharing.

    Reply

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

Top 5 Differences

  • Difference Between PERT and CPM
  • Difference Between Micro and Macro Economics
  • Difference Between Developed Countries and Developing Countries
  • Difference Between Management and Administration
  • Difference Between Qualitative and Quantitative Research



New Additions

  • Difference Between Deforestation, Reforestation and Afforestation
  • Difference Between Race and Ethnicity
  • Difference Between Customer Service and Customer Experience
  • Difference Between Human Capital and Human Development
  • Difference Between Systems Approach and Contingency Approach
  • Difference Between Industrial Relations and Employee Relations
  • Difference Between Introduction and Executive Summary
  • Difference Between Programmed and Non-programmed Decisions
  • Difference Between Depreciation and Devaluation of Currency
  • Difference Between Consumer Market and Business Market

Categories

  • Banking
  • Business
  • Education
  • English
  • Finance
  • General
  • IT
  • Law
  • Science
fb-follow youtube follow

Copyright © 2025 · Key Differences · Contact Us · About Us · Privacy