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 theoutflow 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:
- 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.
| Cash Flow | Fund Flow |
| Definition |
| Cash flow is based on the concept of outflow and inflow 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.
Top Differences in Commerce:
FAQs
The cash flow will record a company's inflow and outflow of actual cash (cash and cash equivalents). The fund flow records the movement of cash in and out of the company. Both help provide investors and the market with a snapshot of how the company is doing on a periodic basis.
What is the difference between cash flow and fund flow? ›
Cash flow statements focus on tracking the actual movement of money in and out of a business. Fund flow is the working capital of a business and includes the net movement of funds. Both cash flow and fund flow statements offer a quick snapshot of how well a company is doing for investors and the market.
What is the difference between cash flow and? ›
Cash flow is the money that flows in and out of your business throughout a given period, while profit is whatever remains from your revenue after costs are deducted.
What is the difference between FCF and OCF? ›
Key Takeaways. Operating cash flow measures cash generated by a company's business operations. Free cash flow is the cash that a company generates from its business operations after subtracting capital expenditures.
What is the difference between cash flow and cash inflow? ›
Cash flow is the net cash and cash equivalents transferred in and out of a company. Cash received represents inflows, while money spent represents outflows. A company creates value for shareholders through its ability to generate positive cash flows and maximize long-term free cash flow (FCF).
What is the difference between cash and fund? ›
The primary difference between the two is that money available in physical form as a currency is termed as cash, while funds concern all the financial resources.
What is an example of a fund flow? ›
Fund Flow = Total Sources of Funds – Total Uses of Funds. For example, if a company in India issues INR 10,00,000 in new equity shares (source) and invests INR 6,00,000 in fixed assets (use), the fund flow would be INR 10,00,000 – INR 6,00,000 = INR 4,00,000.
What is cash flow in simple terms? ›
Cash flow refers to the net balance of cash moving into and out of a business at a specific point in time. Cash is constantly moving into and out of a business. For example, when a retailer purchases inventory, money flows out of the business toward its suppliers.
What is a funds flow statement? ›
A Funds Flow Statement is a financial document that analyses a company's Balance Sheet of two years to validate the movement of funds from the previous financial year to the current year.
Is cash flow good or bad? ›
Positive cash flow indicates that a company's liquid assets are increasing. This enables it to settle debts, reinvest in its business, return money to shareholders, pay expenses, and provide a buffer against future financial challenges. Negative cash flow indicates that a company's liquid assets are decreasing.
As you can see, the key difference between a cash flow hedge and a fair value hedge is the hedged item. With a cash flow hedge, you're hedging the changes in cash inflow and outflow from assets and liabilities, whereas fair value hedges help to mitigate your exposure to changes in the value of assets or liabilities.
How to explain free cash flow? ›
Free cash flow, or FCF, is the money that is left over after a business pays its operating expenses (OpEx), such as mortgage or rent, payroll, property taxes and inventory costs — and capital expenditures (CapEx).
What is the difference between FCF and cash balance? ›
Anup, Ending Cash Balance is a Balance sheet item. It indicates how much cash the company has in its bank account. Free Cash flow is a number that is calculated using income statement items. It indicates how much cash the company generates after paying off all its expenses.
What does Ebitda stand for? ›
Share. EBITDA definition. EBITDA, which stands for earnings before interest, taxes, depreciation and amortization, helps evaluate a business's core profitability. EBITDA is short for earnings before interest, taxes, depreciation and amortization.
What are the three types of cash flows? ›
There are three cash flow types that companies should track and analyze to determine the liquidity and solvency of the business: cash flow from operating activities, cash flow from investing activities and cash flow from financing activities. All three are included on a company's cash flow statement.
How to analyze cash flow? ›
One can conduct a basic cash flow analysis by examining the cash flow statement, determining whether there is net negative or positive cash flow, pinpointing how the outflows compare to inflows, and draw conclusions from that.
What do you mean by fund flow? ›
What Is Fund Flow? Fund flow is the cash that flows into and out of various financial assets for specific periods of time. It's usually measured on a monthly or quarterly basis. Fund flow doesn't measure the performance of any single asset but emphasizes how cash is moving.
What is fund flow statement in simple words? ›
The fund flow statement is a financial statement that records the inward and outward flow of business funds or assets. It identifies the reason for a change in the financial position of a company by comparing two years' balance sheets.
How do you define cash flow? ›
Cash flow refers to the net balance of cash moving into and out of a business at a specific point in time. Cash is constantly moving into and out of a business. For example, when a retailer purchases inventory, money flows out of the business toward its suppliers.
What is the flow of funds in simple terms? ›
Flow of Funds (FOF) are financial accounts that trace the inflow and outflow of funds between sectors in an economy. This happens because money keeps revolving between sectors wherein the surplus from one sector is parked with another sector through financial vehicles such as loans or capital transfers.
