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what is cash flow and funds flow? Difference between cash
and funds flow? methods of cash flow
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Answer Posted / tv jairajan
Difference between cash flow & funds flow:
1. Cash flow statement is based on narrow concept i.e. Cash
= Fund; whereas funds flow statement is based on broader
concept i.e. Fund = Working capital.
2. Cash flow statement recognizes “cash basis of
accounting”; whereas funds flow statement is prepared on
“accrual basis of accounting”
3. Cash flow statement is useful for short term financial
planning; whereas funds flow statement is useful for long
term financial planning
4. Cash flow statement highlights only the causes of cash
variations; whereas funds flow statement discloses the
causes of overall working capital variations
5. In case of cash flow analysis, an increase in a current
liability or decrease in a current asset (other than cash)
results in increase in cash or vice verse; whereas in case
of funds flow analysis, an increase in a current liability
or decrease in a current asset results in working capital &
vice versa
6. Cash/Bank is part of working capital, if the cash/bank
position improves, it improves the funds position. If there
is inflow of cash, it means inflow of funds. But as funds
comprise other current assets & current liabilities, inflow
of funds need not necessarily mean inflow of cash. Hence,
sound funds position does not mean sound cash/bank position
but a sound cash/bank position means a sound funds position.
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