Sale of goods, cash received from debtors Cash Flow from Investing Activities Cash resulting from purchase or sale of assets are recorded as investing activities. Cash flow statement is a statement that records the cash inflows and outflow for a financial year.
So it is important to make a cash flow report if one wants to know about the liquidity position of the company. Funds flow statement has many advantages; however it has some disadvantages or limitations also. In financial accounting"cash flow" refers to the statement of cash flowsa required report under generally accepted accounting principles GAAP.
The Purpose for Preparing a Statement To explain why there had been movement of cash at the start and at the end of a certain period. Simply speaking, cash flow is the most report explaining the inflows and outflows of cash in a business while funds flow refers to a previous and current report combined to explain any change or discrepancy.
Statement of changes in working capital is not prepared. Usage Funds flow statement is more useful in assessing the long-range financial strategy. In simple words it presents the data in the financial statements in systematic way and therefore many companies tend to avoid preparing funds flow statements.
Cash flow statement stars with the opening balance of cash and reaches to the closing balance of cash by proceeding through sources and uses.
The reasons for the change in cash are known through cash flow statement. I will come back for some more doubts. It shows the Differnce between cash flow and fund movement after the inflow and outflow of cash funds has been examined. The reasons for the change in working capital are known through fund flow statement.
The Fund Flow Statement shows how the funds were raised from various sources and also how those funds were deployed by a company, therefore it is a great tool for management when it wants to know about where and from what sources funds were raised and also how those funds got utilized into the business.
Liquidity is vital for both survival and long term profitability of the business. It shows the additions in the working capital through various sources like issuing shares, debentures or raising loans, etc.
Fund flow statement reports sources and applications of funds. It is used for preparing cash budgeting. The only focus of fund flow is on the movement of cash. Funds flow statement is basically historic in nature, that is it indicates what happened in the past and it does not communicate anything about the future, only estimates can be made based on the past data and therefore it cannot be used the management for taking decision related to future.
Medium term and long term financial planning is done through funds flow statement. Funds flow statement only rearranges the data which is there in the books of account and therefore it lacks originality.
The fund has a bigger approach than cash. Use Cash flow statement is a published financial statement, thus is used by a number of external stakeholders.
Management Accounting Differences between Cash Flow Statement and Funds Flow Statement Even though Cash flow statement and Funds flow statement focus on the concept of fund, there are some differences between these two statements.
Cash flow and fund flow are terms which are commonly found in accounting. The investing use of fund flow is more useful today. In terms of investing, people who are in charge of monitoring fund flow are the market analysts and the investors.
This statement is prepared in an accrual basis and records the sources and applications of funds. Cash outflows can result from making purchases, paying back loans, expanding operations, paying salaries or distributing dividends.
However, of the two, cash flow statements are more widely used as it is a known fact that cash movement is a better prediction of liquidity, as opposed to working capital.
All these cash receipts and payments are then summed up together to derive at a figure known as the net cash flow, which is essentially the cash that is left over once all cash movements have been accounted.
Key Differences Between Cash and Fund The points given below are noteworthy, so far as the difference between cash and fund is concerned: Increase in current liability or decrease in current asset brings increase in cash and vice versa. Redemption of shares, purchase of fixed assets Unlike the cash flow statement, fund flow statement is not a part of published financial statements; thus are mainly prepared for internal purposes.
Cash flow statement shows the causes the changes in cash. Additionally, companies also prepare the retained earnings statement and funds flow statement to obtain better insight of business activities.The points given below are noteworthy, so far as the difference between cash and fund is concerned: Cash is a current asset while Fund is a liability which may be current or non-current.
Cash contains currency in physical form only, while fund contains cash, credit, cheque, kind, etc. The cash flow statement, known formally as the Statement of Cash Flows, reports a company's change in cash and cash equivalents from one balance sheet date to another.
The cash flow statement classifies the amount of the change according to operating, investing, and financing activities. See how cash flow and fund flow differ from each other, and why fund flow can be used very differently by accountants and investors. Cash is an asset but fund is liability (Like shareholders fund or Creditors Fund etc.).
Fund is greater concept which may or may not be in liquid form where as cash is a liquid asset. Fund Flow and Cash Flow • A firm’s cash flow statement will clearly show the movement of cash around the business, how the cash has been coming in and where it has been spent.
• The funds flow statement, on the other hand, shows the movement of working capital. The difference between cash flow and funds flow March 08, / Steven Bragg Cash flow refers to the current format for reporting the inflows and outflows of cash, while funds flow refers to an outmoded format for reporting a subset of the same information.Download