A fund flow statement describes how additional funds were described and used to which these funds were put. Fund flow is the way of raising the enterprise’s fund’s profitable size, and fund flows ensure the proper use of funds. The sources of funds are shown in the statement.
Fund flow is the financial statement’s part where enterprises fund expenses during the accounting period. The accounting statement delegates the fund’s inflow and outflow of enterprises.
Difference between Funds Flow Statement and Cash Flow Statement
There is some difference between the fund flow statement and cash flow statement, which are given below;
| Basis of Difference | Funds Flow Statement | Cash Flow Statement |
| Basis of Analysis | Funds flow statement is based on a broader concept, i.e., working capital. | Cash flow the statement is based on a narrow concept, i.e., cash, which is only one of the elements of working capital. |
| Source | Funds flow statement tells about the various sources from where the funds generated with various uses to which they are put. | The cash flow statement starts with the opening balance of cash and reaches the closing balance of cash by proceeding through sources and uses. |
| Usage | Funds flow statement is more useful in assessing the long-range financial strategy. | The cash flow statement is useful in understanding the short-term phenomena affecting the liquidity of the business. |
| Schedule of Changes in Working Capital | In the funds’ flow statements, changes in current assets, and current liabilities are shown through the schedule of changes in working capital. | In the cash flow statement, changes in current assets and current liabilities are shown in the cash flow statement itself. |
| End Result | Funds flow statement shows the causes of changes in net working capital. | The cash flow statement shows the causes of the changes in cash. |
| Principal of Accounting | Funds flow statement is in alignment with the accrual basis of accounting. | In the cash flow statement, data obtained on an accrual basis are converted into a cash basis. |
Differences Between Funds Flow Analysis and Ratio Analysis?
Both are used in the measurement of the performance of a financial statement. The primary between funds flow analysis and ratio analysis are given below;
| Aspect | Funds Flow Analysis | Ratio Analysis |
| Definition | Funds flow statement is a statement of sources and uses of funds and explains changes in net working capital between two balance sheet dates. | Ratio analysis is the mathematical expression of the two variables which measure organizational performance. |
| Purpose | To know about the sources and uses of funds of an enterprise. | To measure the performance of the organization. |
| Function | It looks at the relationships between aspects of a company’s operating statement and operating sheets. | Fund flow analysis tells you where the money is going. |
| Scope | Fund flow is so limited because it shows sources and uses of funds. | Ratio analysis covers the cash flow. |
| Uses of Statement | Fund flow is used internally. | The ratio analysis statement is universal. |
| Scope | Fund flow is so limited because it shows sources and uses of funds. | Ration analysis covers the cash flow. |
| Decision-making process | Fund flow helps to know about the fund of an enterprise. | Ratio analysis must help to make effective decisions. |
Funds Flow Analysis and Ratio Analysis – Which one is Superior
By interpreting the two statements, the ratio analysis statement is superior then the fund flow statement because of the following reason, those are:
- The ratio determines the right credit more significantly but not in fund flow.
- The ratio helps to make an effective plan and decision, but not in the fund flow statement.
- Ratio analysis assists in comparing the performance with other firms, but fund flow is not used.
- To find the source of investment, the ratio helps very effectively.