Top 8 Difference Between Cash Flow and Fund Flow

The concept of Cash Flow and Fund Flow is fundamental to the discipline of accounting. It is beneficial to assess the liquidity position of a company.

Cash flow and Fund flow are two different statements that have a varied scope and serve a different purpose in a business.

A student of Commerce needs to have clarity on these concepts.

Meaning of Cash Flow

Cash flow refers to the outflow and inflow of cash or cash equivalents in an organization in a specific period. Cash flow is recorded in the cash flow statement, which is one of the most important financial statements in accounting.

There are many sources of cash flow in an organisation which may be categorized as:

1. Cash Flows from Operating activities: It represents the movement of cash from the core operations of a business
2. Cash Flows from Investment Activities: It represents the flow of cash due to purchase or sale of an asset or any other investment activities for the business
3. Cash flow from financing activities: It involves changes in the flow of cash involving selling or paying off financial instruments such as the issuance of debt, issuing shares and debentures or repayment of debt

Meaning of Fund Flow

Fund flow refers to the working capital of the company, and a fund flow statement is prepared to visualize the changes in working capital of the company over a period of time. Investors use the fund flow information to determine where capital needs to be invested.

There are two types of inflow of funds in a business

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

The following table will enumerate the most significant differences between the cash flow and fund flow, which will be highly beneficial for students.

This article will help students build a solid foundation for understanding the most important differences between Cash Flow and Fund Flow. For more such interesting topics, stay tuned to BYJU’s.