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Difference Between Cash Flow Statement and Funds Flow Statement
Although a lot of people consider cash flow statement and funds flow statement to be the same; however, they are different in many aspects. Right from their popularity to their use, they have differences in many forms.
Following are the major differences that separate cash flow and funds flow statements −
Reporting Financial Health
The cash flow statements and the funds flow statements report different aspects of the financial health of a company. The cash flow statement is more into cash. It shows the inflow and outflows of cash within a certain time period. This is mainly to show the cash or cash equivalents that help investors understand the financial condition better.
Whereas, the funds flow statement is related more to working capital. It shows the funds that a firm has or can generate for a particular project. Funds flow statements are bigger in nature than cash flow statements as they report total funds for a certain period.
Difference in Purpose
Cash flow statements and funds flow statements are also different in their purposes. The purpose of a cash flow statement is to show the movements of cash. It shows how, why and when cash outflows occurred within a certain period. In contrast, the funds flow statement shows the change in the financial position of a company in two reporting periods. Therefore, whereas cash flow statements are made for a financial year, the cash flow statements are made for two financial years.
Basis of Accounting
Apart from the differences mentioned above, the cash flow statements and funds flow statements differ in their basis of accounting too.
The cash flow statement resorts to the cash basis of accounting whereas the funds flow statement depends on the accrual basis of financial accounting. This means that the amounts in a cash flow statement are static in nature whereas the items in the funds flow statement are dynamic or changing from one to another in nature.
Short and Long-Terms
Cash flow statements are short-term statements that show the cash inflows and outflows within a certain period (usually a year) whereas the funds flow statement is long-term in nature (usually for five to ten years).
The analysts consider the cash flow statement superior to the funds flow statement in analyzing the financial health of a firm because they keep reporting the condition every year. On the other hand, the funds flow statement is relevant to checking the current as well as historical financial conditions of a firm.
Nature of Project
Cash flow statements indicate the cash nature of a project. They deal with the cash that a company has or can generate for a particular project.
The funds flow statement, on the contrary, deals with sources and applications of funds (working capital). This means that funds flow statements show how the working capital has been used, whereas cash flow statement shows the movement of cash from and to the company’s account.
Opening and Closing Balances
Cash flow statements show both the opening and closing balances of cash and cash equivalents for the period of accounting. The funds flow statement, however, shows no opening or closing accounts of cash and cash equivalents.
Calculations of the Funds
In terms of calculations too there is a difference between cash flow statement and funds flow statement. Whereas the cash flow statements calculate cash and cash equivalents during a certain period, the funds flow statement calculates the working capital.
Usage of Funds
Cash flow statements and funds flow statements are used by the fraternity of people too.
The cash flow statement is predominantly used by external stakeholders; whereas, the funds flow statement is basically used by the insiders. The funds flow statements are like indicators that show the series of achievements over a long-term period.
Sources of Funds
The cash flow statements are related to cash flow from operating, financing, and investing activities; whereas, the funds flow statement shows the application and sources of funds.
Mandatory to Report
In addition to the above-mentioned differences, one notable difference is that the cash flow statements are mandatory to be reported, whereas the funds flow statements are not mandatory to be published.
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