Difference Between National Income and Private Income
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 the outflow 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.
Top 8 Differences Between Cash Flow and Fund Flow
| Aspect | Cash Flow | Fund Flow |
|---|---|---|
| Definition | Describes the inflow and outflow of cash or cash equivalents over a period of time. | Based on the concept of changes in working capital over time. |
| What Does It Calculate? | Calculation of cash generated from operations. | Calculation of funds generated from operations. |
| What It Shows | Shows the current short-term position of the company. | Shows the long-term financial position of the company. |
| Purpose | Tracks the movement of cash at the beginning and end of an accounting period. | Displays changes in the financial position between previous and current accounting periods. |
| Discloses | Inflows and outflows of cash. | Sources and uses of available funds. |
| Accounting Base | Cash Basis of Accounting. | Accrual Basis of Accounting. |
| Financial Statement | Yes, part of the financial statements. | Not typically included as a standard financial statement. |
| Budgeting Application | Used for Cash Budgeting. | Used for Capital Budgeting. |
This comparison highlights the key differences between Cash Flow and Fund Flow, providing students and financial professionals with the knowledge needed to evaluate a company’s financial health.