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The funds flow statement is a report on the movement of funds or working capital. It is a summary of a firm’s inflow and outflow of funds. It tells us from where funds have come and where funds have gone.
Cash flow statement or statement of cash flows is a financial statement that shows how changes in balance sheet and income accounts affect cash and cash equivalents, and breaks the analysis down to operating, investing, and financing activities.
The cash flow statement, known formally as the Statement of Cash Flows, reports a company's change in cash and cash equivalents from one balance sheet date to another. The cash flow statement classifies the amount of the change according to operating, investing, and financing activities. The cash flow statement has been required by the Financial Accounting Standards Board since1988, when it issued its Statement No.95. You can read about the statement of cash flows at www.FASB.org/st.Prior to1988, accountants prepared a funds flow statement. Generally, the funds flow statement reported on thechange in working capital from one balance sheet date to another.
Both funds flow and cash flow statements are used in analysis of past transactions of a business firm. Main differences between Cash flow and Fund flow statement is given below: 1. Fund flow statement reflects the change in the working capital of a company while cash flow statement shows the change in the cash position of the company between two balance sheet dates. 2. Funds flow statement deals with all the components of working capital while cash flow statement deals with cash and cash equivalents. 3. Cash flow statement there is classified into operating activities, investment activities and financing activities, but funds flow statement there is no such classification. 4. As cash flow statement is easily understood by any person but funds flow statement is little bit complex.
Cash flow is cash in vs. cash out. Funds flow is funds in vs. funds out.
Cash Flow:
It measures actual inflow and outflow of cash. It does not consider any accruals.
While drafting a cash flow, you start with the opening balance of cash and summarize the receipts and payments and the resultant figure is the closing balance of cash.
Funds flow:
It measures the working capital of the company. It is excess of current assets over current liabilities.
Consider depreciation : Though an entry is made in the P&L account, cash does not go out. Therefore, while preparing funds flow statement, you have to add this amount to profit.
Similarly, when you sell a asset, you have to account for profit of loss on sale of an asset. You take into account the book value of the asset and find the difference from sale value and estimate your profit. Therefore, if you had accounted for loss, it is again a book entry only and has to be added back to profits.
The difference between cash flow and funds flow is that cash flow is based on cash while funds flow is based on working capital. When writing accounting statements, the funds flow statement records the net increase or decrease in working capital while the cash flow statement records individual cash items.
Funds Flow statements states the changes in the working capital of the business in relation to the operations in one time period. For example, if the inventory of the business increased from $1,40,000 to $1,60,000, then this increase of $20,000 is the increase in the working capital for the corresponding period and will be mentioned on the funds flow statement. Net working capital is the total change in the business's working capital, calculated as total change in current assets minus total change in current liabilities.
Cash flow statements have largely superseded funds flow statements as measurements of a business's liquidity because cash and cash equivalents are more liquid than all other current assets included in working capital's calculation
The cash flow statement, known formally as the Statement of Cash Flows, reports a company's change in cash and cash equivalents from one balance sheet date to another. The cash flow statement classifies the amount of the change according to operating, investing, and financing activities.
Generally, the funds flow statement reported on the change in working capital from one balance sheet date to another.
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