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Difference Between Cash Flow and Fund Flow

The basis of the accounting discipline is the idea of cash flow and fund flow. These are advantageous to evaluate a company's liquidity condition.

Both the statements of cash flow and fund flow have a unique scope and function in a firm.

Difference Between Cash Flow and Fund Flow

A company's changes in its cash position (inflows and outflows) are displayed on the cash flow statement. It is a declaration of analytical reconciliation that explains the causes of variations between opening and closing cash balances over a period of time. The Fund Flow Statement, on the other hand, is a statement that illustrates the fluctuations in the entity's financial situation or changes in working capital between the two fiscal years.

Cash Flow Statement

Difference Between Cash Flow and Fund Flow

Cash flow is the amount of cash that comes in and goes out of a company. Businesses receive income from sales and spend that amount on overhead. Additionally, they could make money via investments, royalties, licensing deals, and interest payments.

One of the most crucial goals of financial reporting is to assess the volume, timeliness, and unexpected character of cash flows as well as their sources and destinations. It is crucial for determining a firm's liquidity, adaptability, and overall financial performance.

Positive cash flow is a sign that a company's liquid assets are growing, allowing it to meet commitments, reinvest in its operations, distribute profits to shareholders, cover costs, and act as a safety net against upcoming financial difficulties. Strong financial flexibility enables businesses to benefit from lucrative investments. They also perform better during recessions since they don't incur the price of financial hardship.

Difference Between Cash Flow and Fund Flow

The cash flow statement is a typical financial report that shows the sources and uses of cash for a business over a specific time period and may be used to analyze cash flows. Business management, analysts, and investors may use it to judge a company's ability to earn enough cash to pay off its obligations and keep control of its operating costs. A company's most important financial statements are the cash flow statement, balance sheet, and income statement.

Types of Cash Flow

1) Cash Flows from Operations (CFO)

The term "cash flow from operations" (CFO), often referred to as "operating cash flow," describes financial activities that are directly associated with the production and sale of goods. The CFO of an organization can determine whether or not there is enough money coming in to pay bills or cover operating expenses. In other words, a company has to generate more operational cash inflows than operating cash outflows in order to stay financially viable over the long run.

To calculate operating cash flow, cash from sales is deducted from cash spent for operational expenses over time. The cash flow statement of an organization, which is presented quarterly and annually, includes operating cash flow information. Operating cash flow reveals if a company can generate enough money to fund and expand operations, but it may also indicate when a company could require outside financing for capital expansion.

It should be noted that the CFO is important in separating sales from funds received. For instance, revenue and profits would increase if a business made a sizable transaction with a customer. However, if it is difficult to collect the money from the consumer, the increased revenue may not necessarily boost cash flow.

2) Cash Flows from Investing (CFI)

The terms "cash flow from investing" (CFI) and "investing cash flow" refers to a report that details the amount of money made or spent on various investment-related activities during a certain time period. Speculative asset acquisition, stock investment, and asset sale are a few examples of investing activity.

Negative cash flow from investment activities is not always a warning sign. It could be the consequence of significant investments being made in the future prosperity of the company, such as in R & D.

3) Cash Flows from Financing (CFF)

"Financing cash flow" (CFF) is the word used to describe the net cash flows used to sustain both the capital and the operations of the organization. Finance activities include, for example, investments in debt, shares, and dividend payments. The cash flow from financing activities provides information to investors about a company's capital structure management and financial health.

Cash that enters and leaves different financial assets over a certain period of time is referred to as fund flow. A monthly or quarterly measurement is typical.

Fund Flow Statement

Difference Between Cash Flow and Fund Flow

Fund flow is not a performance indicator for any asset. For mutual funds, for instance, fund flow monitors the cash spent on buying shares, also known as inflows, and the cash used to redeem shares, also known as outflows. It needs to mention how well or poorly a fund performed.

A net inflow happens when there are more cash flows than outflows, such as into the mutual fund. When there is a net inflow, managers have extra money to invest. This should increase demand for financial instruments like stocks and bonds. A net outflow would mean that the mutual fund received more money than was put in it.

Importance of a Funds Flow

  • Financial Position: The factors for a change in a company's financial position are not shown by a profit and loss statement or balance sheet. Information on the source of the funds (Source of Funds) and the uses of the funds will be provided in the statement (Application of Funds).
  • Analysis of the Company: Businesses that are profitable frequently experience cash flow problems. The funds flow statement provides an accurate picture of the source and use of funds in these situations.
  • Management: In addition to acting as a management control tool, the funds flow statement aids management in deciding on its future course of action.
    Difference Between Cash Flow and Fund Flow
  • Changes in Assets and Liabilities: The statement explains the factors that led to the change in assets and liabilities between two balance sheet dates. As a consequence, you may examine the balance sheet in more detail.
  • Creditworthiness: Lending institutions evaluate a company's creditworthiness using this statement. Before authorizing a loan, they compare the statement throughout the years. As a result, the statement shows how credible a corporation is at managing funds.

Limitations of Funds Flow

Despite being crucial for examining a company's financial situation, the statement has the following drawbacks:

  • The declaration exclusively addresses the transfer of cash. Other factors that are a component of the profit and loss account and balance sheet are not considered.
  • Since the funds flow statement does not reflect the cash position of a firm, it must be examined in conjunction with the balance sheet and profit and loss account. As a result, a separate cash flow statement must be created for the purpose of examining the cash position.

Key Differences Between Cash Flow Statement and Fund Flow Statement

Difference Between Cash Flow and Fund Flow
  1. The inflow and outflow of money of a firm are depicted in a cash flow statement created using historical data. In contrast, a fund flow statement is a statement that shows analytical information about numerous money sources and how they are used in an accounting cycle.
  2. The fund flow statement examines changes in working capital between two balance sheet dates compared to the cash flow statement, which deals with fluctuations in the firm's cash position. Cash is only one of the numerous components that make up working capital.
  3. Cash flow statements are prepared using the cash basis of accounting. On the other hand, the fund flow statement uses the accrual method of accounting.
  4. Compared to a cash flow statement, which is designed for short-term financial planning and decision-making, a fund flow statement is the greatest instrument for long-term financial planning and decision-making.
  5. The closing cash balance, which results from adjusting the sources and uses of cash, appears on the Cash Flow Statement between the opening and opening cash balances, on the other hand the opening and closing balances are not included in the fund flow statement.
  6. The fund flow statement illustrates the origins and uses of money, whereas the cash flow statement only shows the input and outflow of money.
  7. The cash flow statement can explain the cash flow between two points in time. The Fund Flow Statement, in contrast, makes it easier to identify the reasons for changes in the assets and liabilities listed on the balance sheet between two fiscal years.
  8. The Cash Flow Statement is part of the Financial Statement. Fund Flow Statement, which is distinct from the Financial Statement.

Tabular Comparison Between Cash flow and Fund Flow

Basis Cash flow Fund flow
Meaning It displays the inflow and outflow of cash and its equivalents over a given time period. It draws attention to any variations in a company's working capital from one period's conclusion to the next.
Accounting Method Only when there is liquid cash present, such as money in the form of a bank transfer or currency, cash flow accounting performed. The accrual method of accounting is used to record fund flow instead of the actual payment or collection.
Utility A company's net cash flow for a specific time period is determined by cash flow. The use of fund flow includes knowing a company's entire financial situation.
Analysis of business position A cash flow estimate can be used to determine a company's short-term financial condition. The evaluation of a company's long-term situation is aided by the calculation of funds flow.
Disclosures made Under cash flow, all cash-related disclosures are disclosed, including both inflows and outflows. The application of funds is made possible by the ability to disclose, identify, and track all sources of funding.
Inclusion in the annual financial statement A cash flow statement must be included in the yearly financial statement of the designated enterprises. A company might include fund flow figures in the yearly financial statement even if it is not legally necessary to do so in order to satisfy investor requests or foster investor trust.


Cash is one of the parts that make up working capital. As a result, when the position of cash improves, so does the position of funds, but the opposite is not true. When there is an inflow of funds, there is also an inflow of cash; nevertheless, the fund inflow does not cause the inflow of cash.

We may conclude that the "Cash Flow Statement" is more important for the shorter the planning period, whereas the "Fund Flow Statement" is more crucial for the longer the planning period.

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