Balance Sheet vs. Cash Flow Statement: What's the Difference? (2024)

Balance Sheet vs. Cash Flow Statement: An Overview

The balance sheet and cash flow statement are two of the three financial statements that companies issue to report their financial performance. The financial statements are used by investors, market analysts, and creditors to evaluate a company's financial health and earnings potential. While the balance sheet shows what a company owns and owes, the cash flow statement records the cash activities for the period.

Key Takeaways

  • A balance sheet shows what a company owns in the form of assets and what it owes in the form of liabilities.
  • A balance sheet also shows the amount of money invested by shareholders listed under shareholders' equity.
  • The cash flow statementshows the cash inflows and outflows for a company during a period.
  • In other words, the balance sheet shows the assets and liabilities that result, in part, from the activities on the cash flow statement.

Balance Sheet

A balance sheetlists a company's assets, liabilities, and shareholders' equity at a point in time, typically at the end of a period, such as the end of a quarter or year. A balance sheet shows what a company owns in the form of assets, what it owes in the form of liabilities, and the amount of money invested by shareholders listed under shareholders' equity (also referred to as owners' equity).

The balance sheet shows a company's assets, but also shows how those assets were financed,whether it was through debt or through issuing equity. The balance sheet is broken down into three parts: assets, liabilities,and owners' equity, and it is represented by the following equation:

Assets=Liabilities+Owners’Equitywhere:Owners’Equity=TotalAssetsminustotalliabilities\begin{aligned} &\text{Assets} = \text{Liabilities} + \text{Owners' Equity} \\ &\textbf{where:} \\ &\text{Owners' Equity} = \text{Total Assets minus total liabilities} \\ \end{aligned}Assets=Liabilities+Owners’Equitywhere:Owners’Equity=TotalAssetsminustotalliabilities

To calculate the balance sheet, one would add total assets to the sum of total liabilities and shareholders' equity.

The balance sheet equation above must always be in balance. If cash is used to pay down a company's debt, for example, the debt liability account is reduced,and the cash asset account is reduced by the same amount, keeping the balance sheet even.The name "balance sheet" is derived from the way that the three major accounts eventually balance out and equal each other; allassetsare listed in one section, and their sum must equal the sum of allliabilitiesand theshareholders' equity.

Below are examples of items listed on the balance sheet:


  • Cash and cash equivalentsareliquid assets, which may include Treasury billsandcertificates of deposit.
  • Marketable securitiesareequity and debt securities.
  • Accounts receivablesarethe amount of money owed to the company by its customers for product and service sales.
  • Inventory is either finishedgoods or raw materials.


  • Debt includinglong-term debt
  • Rent, taxes, utilities payable
  • Wages payable
  • Dividendspayable

Shareholders' Equity

  • Shareholders' equity is a company's total assets minus itstotal liabilities.Shareholders' equity represents the net value or book value of a company. It isthe amount of money that would be returned to shareholders if all of theassets were liquidated, and all of the company'sdebt waspaid off.
  • Retained earningsare recorded under shareholders'equity and are the amount ofnet earningsthat were not paid to shareholdersasdividends. Instead, the money wasretained to be reinvested in thebusiness, or pay down debt.

The balance sheet shows a snapshot of the assets and liabilities for the period, but it does not show the company's activity during the period, such as revenue, expenses, nor the amount of cash spent. The cash activities are instead, recorded on the cash flow statement.

Cash Flow Statement

The cash flow statementshows the amount of cash and cash equivalents entering and leaving a company.

The cash flow statement (CFS) measures how well a company manages and generates cash to pay its debt obligations and fund operating expenses. The cash flow statement is derived from the income statementby taking net income and deducting or adding the cash from the company's activities shown below.

The three sections of the cash flow statement are:

  • Cash from operating activities
  • Cash from investing activities
  • Cash from financing activities

Operating Activities

Operating activities on the CFS include any sources and uses of cash from business activities. In other words, it reflects how much cash is generated from the sale of a company's products or services.

Changes made in cash, accounts receivable,inventory, andaccounts payableare shown in cash from operating activities and might include:

  • Receipts from sales of goods and services
  • Interest payments
  • Income tax payments
  • Payments made to suppliers
  • Salaries and wages

Investing Activities

These activities includeany incoming or outgoing cash from a company's long-term investments. Investing activities include:

  • A purchase or sale of an asset
  • Loans made to vendors or received from customers
  • Merger or acquisition payments or credits to cash

Financing Activities

These activities include cash from investors or banks, as well as the use of cash to pay shareholders. Financing activities include:

  • Payment of dividends, which are periodic cash payments to shareholders
  • Payments for stock repurchases, which reduces the number of outstanding shares
  • Repayment of debt principal (loans)

A balance sheetis a summary of the financial balances of a company, while a cash flow statementshows how the changes in the balance sheet accounts–and income on the income statement–affect a company's cash position. In other words, a company's cash flow statement measures the flow of cash in and out of a business, while a company's balance sheetmeasures its assets, liabilities, and owners' equity.

Examples of How the Balance Sheet and Cash Flow Statement Differ

Below are copies of the balance sheet and cash flow statement for Apple Inc. (AAPL)as reported in the 10-Q filing on Dec. 28, 2019.

Balance Sheet

The balance sheet for Apple has the following entries listed for the quarter:

  • Total assets were $340,618 (highlighted in green).
  • Total liabilities were $251,087 (highlighted in red).
  • Total equity was $89,531 (highlighted in gold).
  • Total liabilities and equity were $340,618, (highlighted in blue), which equals the total assets for the period.

Balance Sheet vs. Cash Flow Statement: What's the Difference? (1)

The balance sheet above shows a snapshot of Apple's assets and liabilities for the quarter, but you'll notice it does not show the amount of cash that was spent nor the profit or revenue generated for the quarter.

Undoubtedly, Apple recorded cash flow activity as well as activity from the income statement, such as revenue and expenses. However, the balance sheet doesn't show the actual activity from the quarter. Instead, the balance sheet shows the results of what the company owns and owes as a result of that activity.

Cash FlowStatement

Apple recorded the following cash flow activities for the quarter:

  • The cash flow statement starts with cash on hand and net income (in green at the top of the statement).
  • After calculating cash inflows and outflows from operating activities, Apple posted $30,516 in cash from operating.
  • Investing activities were -$13,668 billion (highlighted in red) in part due to purchases of marketable securities for $37,416 billion and purchases of plant and equipment for $2,107 billion.
  • Financing activities was a -$25,407 (highlighted in gold) primarily as a result of share buybacks totaling $20,706 billion for the period.
  • Apple had $41,665 billion in cash flowfor the quarter (in green at the bottom of the statement).

Balance Sheet vs. Cash Flow Statement: What's the Difference? (2)

To highlight the difference between the two statements, we can look at Apple's investing activities, which included approximately $2.1 billion dollars in purchases of property, plant, and equipment. On Apple's balance sheet (shown earlier), the company recorded $37 billion dollars in property, plant, and equipment. That total includes the $2.1 billion purchase for those fixed assets, which was recorded as a cash outflow in investing activities.

An extreme example would be if Apple decided to pay off $70 billion of its term debt, which totals approximately $93 billion listed on the balance sheet. The company would record the cash outlay of $70 billion dollars within the financing activities section of the cash flow statement. Also, the term debt total on the balance sheet would be listed as the reduced amount of $23 billion.

While the cash flow statement shows cash coming in and going out, the balance sheet shows the assets and liabilities that result, in part, from the activities on the cash flow statement.

Balance Sheet vs. Cash Flow Statement: What's the Difference? (2024)


Balance Sheet vs. Cash Flow Statement: What's the Difference? ›

A balance sheet shows what a company owns in the form of assets and what it owes in the form of liabilities. A balance sheet also shows the amount of money invested by shareholders listed under shareholders' equity. The cash flow statement shows the cash inflows and outflows for a company during a period.

What is the difference between a balance sheet and a cash flow test? ›

Both cash flow and balance sheet insolvency tests are important to assess a company's financial health. There are a couple of key differences between the pair: Balance sheet insolvency compares assets and liabilities. Cash flow insolvency compares available cash flow to meet outgoings on time.

Is cash flow more important than balance sheet? ›

There is no need to compare whether a cash flow statement or balance sheet is more important. They both reveal unique insights and information about a business's finances and can be used to create informed future decisions and forecasts.

What comes first cash flow or balance sheet? ›

The three core financial statements are 1) the income statement, 2) the balance sheet, and 3) the cash flow statement. These three financial statements are intricately linked to one another.

What is the difference between balance sheet and fund flow statement? ›

The balance sheet provides a snapshot of an organization's financial position at a specific point in time. On the other hand, the fund flow statement captures changes in this position over a period. Together, they offer complementary insights into liquidity and solvency.

Do you need balance sheet for cash flow statement? ›

You use information from your income statement and your balance sheet to create your cash flow statement. The income statement lets you know how money entered and left your business, while the balance sheet shows how those transactions affect different accounts—like accounts receivable, inventory, and accounts payable.

Should balance sheet and cash flow statement match? ›

If your ending cash balance on your statement of cash flows doesn't match the cash balance on your balance sheet, you've made a mistake somewhere and will need to investigate the difference.

How to understand cash flow statement? ›

A cash flow statement provides data regarding all cash inflows that a company receives from its ongoing operations and external investment sources. The cash flow statement includes cash made by the business through operations, investment, and financing—the sum of which is called net cash flow.

What are the three types of cash flow statements? ›

The main components of the CFS are cash from three areas: Operating activities, investing activities, and financing activities.

Why is a cash flow statement needed? ›

It is usually helpful for making cash forecast to enable short term planning. The cash flow statement shows the source of cash and helps you monitor incoming and outgoing money. Incoming cash for a business comes from operating activities, investing activities and financial activities.

What is the most important financial statement? ›

Typically considered the most important of the financial statements, an income statement shows how much money a company made and spent over a specific period of time.

What is an example of a cash flow? ›

What is a cash flow example? Examples of cash flow include: receiving payments from customers for goods or services, paying employees' wages, investing in new equipment or property, taking out a loan, and receiving dividends from investments.

What is the difference between the income statement and the cash flow statement? ›

The cash flow statement follows the cash basis of accounting that works on the actual payments and receipts of cash. The income statement follows the accrual basis of accounting that works on the basis of income/payments that are either due or received in advance.

What and what of funds does balance sheet show? ›

The balance sheet includes information about a company's assets and liabilities, and the shareholders' equity that results. These things might include short-term assets, such as cash and accounts receivable, inventories, or long-term assets such as property, plant, and equipment (PP&E).

What is the difference between flow statement and cash flow statement? ›

Key Differences

The cash flow statement is best used to understand the liquidity position of a firm whereas the fund flow statement is best suited for long-term financial planning, which is why it is an important tool for investors.

What is the cash flow test? ›

A cash flow test can be used to identify if a company cannot pay its debts as they fall due or in the 'reasonably near future'.

What is the definition of the cash flow test? ›

The cash-flow test assesses the ability of a company to pay its debts (or sell its assets fast enough to pay its debts) as they become due and payable.

Is cash flow and cash balance the same thing? ›

The traditional definition of cash flow is the amount a company's cash balance increases or decreases during a specific period. An increase in the cash balances from the beginning of the year would be called positive cash flow. If the cash balances were to decrease, there would be a negative cash flow.

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