Understanding Fund Flow vs. Cash Flow: Can Someone Explain the Key Differences?

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Cash flow indicates the availability of cash at any time.

Fund flow indicates where these funds have come from. If funds are generated from internal resources, it indicates the soundness of the organization.

Siva

Dear Friend,

Greetings!

CASH FLOW

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's 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.

Rgds,

John N

Dear Sender,

Cash Flow – how the cash is generated and applied, and in some cases, cash is generated that is not physically available (e.g., depreciation on assets) for future availability of cash.

Fund Flow - considering the availability of funds (balance sheet, P&L account, even working capital) and how it is sourced and applied.

Regards,
LKumar

Statement of Changes in Financial Position:

There are two statements for determining the changes in the financial position, viz., Cash Flow Statement and Funds Flow Statement.

Cash Flow Statement: The cash flow statement 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. However, this statement has serious limitations. Many 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:

The funds flow statement describes the movements of funds during a period. In this statement, only the overall increase/decrease in the total volume of working capital is considered, not the item-wise change in current assets and current liabilities. Working capital is the difference between total liabilities meant to change their form as quickly as possible. Therefore, the changes in their form need not be a reportable event as long as the volume of working capital remains unchanged. However, any change in the total working capital should be reported.

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Regards,

Krishna Saladi
+91 98481 04265