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 refers to a firm's inflow and outflow of cash and cash equivalents during a specific period whereas Fund flow records the changes in the working capital over a time period.
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? ›
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 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.
How do you explain flow of funds? ›
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.
What is cash flow in simple terms? ›
Cash flow is a measure of how much cash a business brought in or spent in total over a period of time. Cash flow is typically broken down into cash flow from operating activities, investing activities, and financing activities on the statement of cash flows, a common financial statement.
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.
What is the difference between FCF and cash flow? ›
Comparing Cash Flow vs. Free Cash Flow. Cash flow is seen as a straightforward measure of the net cash that came into or left the business during a given period of time. Free cash flow is a figure that tells investors how much cash your business has on hand after funding its operating and investing needs.
The FFO represents the operating performance and takes net income, depreciation, amortization, and losses on property sales into account while factoring out any interest income and gains from property sales. The cash flow from operations, on the other hand, is reported on the cash flow statement.
What's the difference between a cash flow statement and a cash flow forecast? ›
A cash flow forecast uses insights and analysis to anticipate how a business' cash flow will perform over time. A cash flow statement is a type of financial statement that shows how much money and cash equivalents a company has on hand.
What is the difference between cash flow and fund flow with example? ›
A company's cash flow and fund flow statements reflect two different variables during a specific period of time. 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.
How long can a company's cash flows continue? ›
Question: How long can a company's cash flows continue? Indefinitely, provided the company survives Until it meets its debt obligations Only for a few years.
Does cash flow mean profit? ›
No, there are stark differences between the two metrics. 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 are the two types of fund flow? ›
Positive fund flow changes note an upswing in inflow, a lessening of outflow, or a combination of the two. In contrast, negative fund flow suggests lower inflows, higher outflows, or both. While occasional shifts may not be cause for concern, repeated instances of negative fund flows can be a worrying sign.
What are the two types of money flow? ›
Here's how they differ:
- Operating cash flow. A company's operating cash flow offers a portrait of its day-to-day operating activities: namely, the income from sales and outflows from salaries, vendor fees, lease payments, taxes, and interest payments. ...
- Investing cash flow. ...
- Financing cash flow.
Understanding the Basics:
While costs represent the expenses incurred by a business (such as production costs, marketing expenses, or administrative overheads), cash flow refers to the movement of money in and out of the company. It's essential to recognize that costs and cash flow are not always in sync.
Is cash flow a payment? ›
Cash flow is defined as the incomings and outgoings of cash pertaining to the operating activities of a business. For example, a business' incomings are the receivables (payments) from customers and clients, while its outgoings are its expenses, such as payroll and leasing office space.
