Diffence between cashflow & fundflow statements

This query is : Open

Querist : Anonymous

Querist : Anonymous (Querist)

12 April 2013 Dear Ones,

Please clarify me on the above subject with examples. You may please mark a copy to my personal email id chandrasekharmc@gmail.com.

Thanks & Regards

M.Chandrasekharan

srinivas reddy

srinivas reddy (Expert)
Follow

12 April 2013 Many people think that both cash and fund are same, however they both are different and so is the case with cash flow statement and funds flow statement. Let’s look at some of the differences between cash flow and funds flow statement –

1. While funds flow statement reveals the change in the working capital of a company between two balance sheet dates while cash flow statement reveals the change in the cash position of the company between two balance sheet dates.

2. As funds flow statement shows the change in working capital it deals with all the components of working capital while cash flow statement deals only with cash and cash equivalents.

3. In case of funds flow statement schedule of changes in working capital is prepared while in case of cash flow statement no such schedule is prepared.

4. While cash flow statement there is classification of cash flows as cash flow from operating activities, cash flow from investment activities and cash flow from financing activities, but as far as funds flow statement is concerned there is no such classification.

5. As cash flow statement is only concerned with cash related transactions it is can be easily understood by a person who does not have accounting knowledge which is not the case with funds flow statement.

Message likes : 1 times

Querist : Anonymous

Querist : Anonymous (Querist)

12 April 2013 Dear Mr.Srinivas Reddy,

Excellent and thanks for your immediate response.

Best Regards

M.Chandrasekharan

Upgrade to CAclubindia Pro. Subscribe Now!

srinivas reddy

srinivas reddy (Expert)
Follow

13 April 2013 Difference between Funds Flow Statement and Cash Flow Statement

Basis of Difference
Funds Flow Statement
Cash Flow Statement
1.
Basis of Analysis
Funds flow statement is based on broader concept i.e. working capital.
Cash flow statement is based on narrow concept i.e. cash, which is only one of the elements of working capital.
2.
Source
Funds flow statement tells about the various sources from where the funds generated with various uses to which they are put.
Cash flow statement stars with the opening balance of cash and reaches to the closing balance of cash by proceeding through sources and uses.
3.
Usage
Funds flow statement is more useful in assessing the long-range financial strategy.
Cash flow statement is useful in understanding the short-term phenomena affecting the liquidity of the business.
4.
Schedule of Changes in Working Capital
In funds flow statement changes in current assets and current liabilities are shown through the schedule of changes in working capital.
In cash flow statement changes in current assets and current liabilities are shown in the cash flow statement itself.
5.
End Result
Funds flow statement shows the causes of changes in net working capital.
Cash flow statement shows the causes the changes in cash.
6.
Principal of Accounting
Funds flow statement is in alignment with the accrual basis of accounting.
In cash flow statement data obtained on accrual basis are converted into cash basis.

Advantages of Cash Flow Statement

1. It shows the actual cash position available with the company between the two balance sheet dates which funds flow and profit and loss account are unable to show. So it is important to make a cash flow report if one wants to know about the liquidity position of the company.

2. It helps the company in accurately projecting the future liquidity position of the company enabling it arrange for any shortfall in money by arranging finance in advance and if there is excess than it can help the company in earning extra return by deploying excess funds.

3. It acts like a filter and is used by many analyst and investors to judge whether company has prepared the financial statements properly or not because if there is any discrepancy in the cash position as shown by balance sheet and the cash flow statement , it means that statements are incorrect.

Disadvantages of Cash Flow Statement

1. Since it shows only cash position, it is not possible to deduce actual profit and loss of the company by just looking at this statement.

2. In isolation this is of no use and it requires other financial statements like balance sheet, profit and loss etc…, and therefore limiting its use.

Advantages of Fund Flow Statements

A Funds flow statement is prepared to show changes in the assets, liabilities and equity between two balance sheet dates, it is also called statement of sources and uses of funds. The advantages of such a financial statement are many fold.

Some of these are:

1. Funds flow statement reveals the net result of Business operations done by the company during the year.

2. In addition to the balance sheet, it serves as an additional reference for many interested parties like analysts, creditors, suppliers, government to look into financial position of the company.

3. The Fund Flow Statement shows how the funds were raised from various sources and also how those funds were deployed by a company, therefore it is a great tool for management when it wants to know about where and from what sources funds were raised and also how those funds got utilized into the business.

4. It reveals the causes for the changes in liabilities and assets between the two balance sheet dates therefore providing a detailed analysis of the balance sheet of the company.

5. Funds flow statement helps the management in deciding its future course of plans and also it acts as a control tool for the management.

6. Funds flow statement should not be looked alone rather it should be used along with balance sheet in order judge the financial position of the company in a better way.

Disadvantages of Fund Flow Statements

1. Funds flow statement has many advantages; however it has some disadvantages or limitations also. Let’s look at some of the limitations of funds flow statement.

2. Funds Flow statement has to be used along with balance sheet and profit and loss account for inference of financial strengths and weakness of a company it cannot be used alone.

3. Fund Flow Statement does not reveal the cash position of the company, and that is why company has to prepare cash flow statement in addition to funds flow statement.

4. Funds flow statement only rearranges the data which is there in the books of account and therefore it lacks originality. In simple words it presents the data in the financial statements in systematic way and therefore many companies tend to avoid preparing funds flow statements.

5. Funds flow statement is basically historic in nature, that is it indicates what happened in the past and it does not communicate anything about the future, only estimates can be made based on the past data and therefore it cannot be used the management for taking decision related to future.

We can conclude that shorter the planning period more relevant is the “Cash Flow Statement and longer the planning period more relevant is the “Fund Flow Statement”

Querist : Anonymous

Querist : Anonymous (Querist)

13 April 2013 Dear Srinivas Reddy,

Once again I am verymuch thankful to you. I will come back for some more doubts.

Thanks & Regards

M.Chandrasekharan