FUNDS FLOW STATEMENT Vs CASH FLOW STATEMENT


Funds flow statement Vs Cash flow statement

The differences are as follows:

Funds flow statement
Cash flow statement
1. It is based on accrual accounting system.
1. While preparation of this statement, all transaction effecting the cash and cash equivalents are taken into consideration.
2. It analysis the sources and application of funds of long-term nature and net increase or decrease in long term funds will be reflected on working capital of the firm,
2. It considers only the increase or decrease in current assets and current liabilities in calculating the cash flow from operations.
3. More useful in long range planning.
3. More useful for identifying and correcting the current liquidity problems of the firm.
4.Sound fund position does not necessarily mean sound cash operation
4. Sound cash operation is always followed by sound fund position.
5. It shows the funds generated and applied as regards long term assets long term liabilities and capital.
5. It shows the cash flow from operating, financing and investing activities.
6. The changes in current items are adjusted in the statement of the changes in working capital.
6. In this statement cash from operations are calculated after adjusting the increase or decrease in current liabilities and assets to operating profit before working capital changes.






Key terms to remember in cash flow statement:
  1.     Cash flow statement: It provides information about the cash receipt and cash payments of an enterprise for a given period by providing information about changes in cash and cash equivalents.
  2.     Cash :It comprises of cash in hand and demand deposit with bank
  3.     Cash equivalents: These are short term and highly liquid investments that are readily converted into cash .Eg: commercial paper and treasury bills.
  4.     Cash flow: It means the movement of cash into and out of the organization and the difference is either net cash inflow or outflow.
  5.     Operating activities: These are the principal revenue producing activities of the enterprise. These transactions and events will be taken into consideration of net profit or loss.
  6.     Investing activities: These activities relate to the acquisition and disposal of long term assets.
  7.     Financing activities: These activities result in changes in the size and composition of the owner’s capital and borrowing of the organization.
  8.     Non cash transaction: Such activities which does not require cash eg investing and financing activities.
  9.     Direct method:  Cash receipt from operating revenues and cash payments for operating expenses are rearranged so as to get cash flow from operating activities.

  10.  Indirect method: Net profit is taken as a base and adjusts it to arrive at cash flow from operating activities.   

Comments

Mohamed Amir said…
Keep up the good work my friend. I like when people share knowledge like this. I myself am trying to do the same through my website.
January 2, 2015 at 6:16 AM
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