Edmonton Bookkeeper: Difference between cash flow and funds flow statement

Edmonton Bookkeeper: Difference between cash flow and funds flow statement

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Edmonton Bookkeeper: Difference between cash flow and funds flow statement

Financial Audit

To know the financial position of your business, financial reporting is crucial. Both, cash flow and funds flow statements are the basics of financial reporting and financial management. One helps in assessing the cash position of your business, while the latter helps in understanding the sources and the applications of funds and shows the working capital of your business. You must know the difference between these two statements so that you can run your business efficiently and carry out financial management in the best way possible. Here are some major differentiating elements between cash flow statement and funds flow statement.

S.No Cash Flow Statement Funds Flow Statement
1 Cash flow statement is prepared based on your business’s cash and cash equivalents. Funds flow statement is prepared based on a broader concept – business’s working capital.
2 Cash flow statement is useful in understanding the short-term factors that affect the liquidity of your business. Funds flow statement is useful in understanding the long-range financial strategies.
3 Cash flow statement includes the inflows and the outflows of cash and cash equivalents every year. Funds flow statement includes the sources and the applications of funds and also the changes in your business’s financial position in different accounting years.
4 If you want to see the change in cash, you can either see a cash flow or funds flow statement. If you want to see the change in working capital, you can only find them in the funds flow statement.
5 The statement doesn’t include changes in any other element of working capital except cash. The statement includes the changes in all the aspects of working capital.
6 Cash flow statement is prepared in alignment with the cash basis of accounting. Funds flow statement is prepared in alignment with the accrual basis of accounting.
7 Short-term business financial planning and preparing cash budgeting are done with the help of a cash flow statement. Medium and long-term business financial planning and preparing capital budgeting are done with the help of a funds flow statement.
8 In a cash flow statement, changes in the current assets and current liabilities are shown in the statement itself. In a funds flow statement, changes in the current assets and current liabilities are shown through the changes in the working capital.
9 Cash flow statement ends annually with closing cash balance in the statement and cash in hand. Funds flow statement ends annually with either an increase or decrease in the working capital.

Now that you know the difference between these two statements, you will be able to analyze your business’s position of cash and funds better. For this purpose, it is important to have financial reporting for your firm. If you need any assistance to manage your funds, then consult a financial controller. Our experts will keep a regular record of all your business transactions and maintain your cash as well as funds flow records.

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