Funds Flow Statement and Cash Flow Statement | Financial Management

Both Funds flow and Cash-Flow statements are used in analysis of past transactions of a business firm. The differences between these two statements are given below:

Difference # Funds Flow Statement:

1. Funds flow statement is based on accrual accounting system.

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2. Funds flow statement analyses the sources and application of funds of long-term nature and net increase or decrease in long-term funds will be reflected on the working capital of the firm.

3. Funds flow statement is more useful in long range planning.

4. Funds flow statement is a broader concept, it takes into account both long-term funds and short-term funds into account in analysis.

5. Funds flow statement tallies the funds generated from various sources with various uses to which they are put.

6. The changes in current items are adjusted in the statement of changes in working capital.

7. Funds flow statement shows the funds generated and applied as regards long-term assets long-term liabilities and capital.

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8. Sound fund position does not necessarily mean sound cash position.

Difference # Cash-Flow Statement:

1. While preparation of this statement, all transactions effecting the cash and cash equivalents are taken into consideration.

2. Cash-flow statement considers only the increase or decrease in current assets and current liabilities in calculating the cash flow from operations.

3. Cash-flow statement is more useful for identifying and correcting the current liquidity problems of the firm.

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4. Cash-flow statement only deals with one of the current assets on assets side of balance sheet.

5. Cash-flow statement starts with the opening balance of cash and reach to the closing balance of cash by proceeding through sources and uses.

6. In this statement cash from operations are calculated after adjusting the increase or decrease in current assets and current liabilities to operating profit before working capital changes.

7. Cash-flow statement shows the cashflow from operating, financing and investment activities.

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8. Sound cash position is always followed by sound fund position.

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