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 inflow and outflow of cash or cash equivalents in an organization during a particular 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:
- Cash Flows from Operating activities: It represents the movement of cash from the core operations of a business
- 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
- 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
- Funds generated by the business operations
- 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.
|Basis of Comparison||Cash Flow||Fund Flow|
|Definition||Cash flow is based on the concept of inflow and outflow of cash and cash equivalents during a particular period||Fund flow is based on the concept of changes in working capital over a period of time|
|What is calculated?||Cash from the operations is calculated||Fund from the operation is calculated.|
|What it shows||It shows the short term position of the business||It shows the position of the business in the long term|
|Purpose||To show the movement of cash during the beginning and end of an accounting period||To show the changes in the financial position of business between previous and current accounting periods|
|Discloses||Inflows and Outflows of cash||Source and application of the available funds|
|Accounting Basis||Cash Basis of accounting||Accrual basis of accounting|
|Part of Financial Statement||Yes||No|
|Used for||Cash Budgeting||Capital Budgeting|
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.