Cash flow is essentially the movement of money into and out of your business; it's the cycle of cash inflows and cash outflows that determine your business' solvency.
Cash flow is a term that refers to the amount of cash being received and spent by a business during a defined period of time, sometimes tied to a specific project. Measurement of cash flow can be used
to evaluate the state or performance of a business or project.
to determine problems with liquidity. Being profitable does not necessarily mean being liquid. A company can fail because of a shortage of cash, even while profitable.
to generate project rate of returns. The time of cash flows into and out of projects are used as inputs to financial models such as internal rate of return, and net present value.
to examine income or growth of a business when it is believed that accrual accounting concepts do not represent economic realities. Alternately, cash flow can be used to 'validate' the net income generated by accrual accounting.
Examples: Doing a cash flow analysis of your accounts receivable will show you which customers are slow payers.
Cash Flow _ how the cash is generated and applicated and in some cases, cash is generated, which is not phisically available ( e.g. depreciation on assets) for future availability of cash
Fund Flow - considering the availability of fund ( balance sheet//P&L a/c
even working capital ) and how it is sourced and how it is applicated
Statement of changes in Financial position:
There are two statements for determing the changes in the financial positio viz.,
Cash Flow Statement and Funds Flows statement
Cash Flow statement: Cash flow statement is a statement that shows the movements of cash. It takes the opening balance of cash adds all cash inflows and deducts all cash outflows to arrive at the closing cash balance. But this has a serious limitations. Money important transactions resulting in a change in Financial position are of a non-cash variety and are excluded from the statement.
The cash equivalent concept of fund can be useful "only for short-term financial planning.
Funds flow statement:
Funds flow statement describes the movements of funds during a period. In this statement, the overall increase/decrease in the total volume of working capital is only considered but not the item-wise change in the current assests and current liabilities. Working capital is the difference between the total liabilities is to change their form as quickly as possible. So the changes in their form need not be a reportable event so long as the volume of Working capital unchanged. But if there is any change in the total working capital, it should be reported.
(suggestions & comments to )
+91 98481 04265
The objective of cash flow is to know that where from the cash was generated and applied during the year. In fund flow the objective is to know the increase/decrease of assets and liabilities.
I hope the matter is clear to you
Found This Useful? +Vote Up This Page Via Google.
Why Vote? User validation is extremely important for good content to prosper.
Disclaimer: This network and the advice provided in good faith by our members only facilitates as a direction towards the actions necessary. The advice should be validated by proper consultation with a certified professional. The network or the members providing advice cannot be held liable for any consequences, under any circumstances.
Explore Topical Knowledge Areas
Topic Categories >> accounts receivable balance sheet bank transaction cash flow depreciation on financial plan internal rate of return Location-India-Allahabad working capital Complete List Of Categories
Interesting Relevant Discussions