Question

How does funds statement differ from the functions of the balance sheet, income statement and statement of cash flows?

Answer 1

Balance sheet is s statement showing the financial position of the company, i.e. a summary of its assets and liabilities

Profit and loss account is a statement showing the operating results of an entity for a particular period

Statement of cash flow shows the movement in cash balance between the opening and closing cash balance, segrregating cash flows between operating, investing and financing activities.

These 3 statements are typically required to be reported under GAAP.

GAAP typicall does not require a fund flow statement (there was a requirement in the past, but fund flow statement is now replaed by cash flow statement). Cash flow generally segregated cash movements into operating, financing and in investing. Fund flow statement only captures sources and application of funds. A lot of information presented in fund flow is also available in cash flow. Fund flow statement basically highlights the sources and application of funds. It does not always split the sources and application by nature, i.e. investing, operating, etc.

Fund flow statements,these days is more used by management. While cash flow is restricted to cash movements, fund flow provides a wider perspective on the financial position of the entity. Cash flow is typically used for cash budgeting as it is purely cash based. Fund flow, being accrual based, is typically used for capital budgeting. Again, cash flow is typically used for short term cash planning whereas fund flow is used for investments with a longer horizon.

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