Cash Flows

cash flows
n order to prepare a statement of cash flows, you have to look back at the comparative
balance sheets for XYZ company. From the two years of balance sheet data and some
income statement data, you build your statement of cash flows. In this example, we will
assume that net income is $110,500, depreciation is $50,000, and the firm pays out
dividends in the amount of $65,000.
The Statement of Cash Flows has three sections. The first section is Cash Flows from
Operating Activities. Line 1 of this section is Net Income. To net income, add Line 2,
which is depreciation. After taking net income and depreciation into account in the
section for operating activities, you then consider any increases or decreases in your
current asset and current liability accounts between the two years of balance sheet
information.
Looking at the balance sheets, accounts receivable, line 3, has increased from $170,000
to $200,000 for an increase of $30,000. Since that increase occurred on the asset side of
the balance sheet, it is shown as a negative figure. Why? If the firm extended $30,000
more in credit to its customers, then it had $30,000 less to use. Likewise, inventory, line
4, increased by $20,000. Prepaid expenses, line 5, decreased by $10,000. A decrease in
asset account, a source of funds to the firm, is a positive number. Cash increased by
$35,000 but it is not included in our initial analysis. It will soon become clear why.
Now look at the liabilities section of the balance sheet. Line 6, accounts payable,
increased by $35,000. Short-term bank loans didn’t change. Accrued expenses, line 7,
such as taxes and wages, decreased by $5,000. Since this is a decrease in a liability
account, it is a use of funds to the firm and a negative number.
Line 8 is Net Cash Flows from Operating Activities, the summary of the first section of
the Statement of Cash Flows. When you add up the adjustments to net income and
depreciation, you get $150,500. The firm is generating a positive net cash flow from its
operating activities.
The next section of the cash flow statement is Cash Flows from Investing Activities.
Usually, this section includes any long-term investments the firm makes plus any
investment in fixed assets, such as plant and equipment. Line 9 shows that the firm
invested $30,000 more in long-term investments in 2009. That shows up as a negative
number as it was a use of assets. The firm also spent $100,000 for more plant and
equipment as stated on line 10.
Line 11 is Net Cash Flows from Investing Activities , the summary of the second section
of the Statement of Cash Flows. It is a negative $130,000 since this was the outlay in
2009.
The last section of the cash flow statement is Cash Flows from Financing Activities. In
this case, you have financed your firm with long-term bank loans that have increased by
$50,000 as indicated on Line 12. Dividends to investors in the amount of $65,000 have
also been paid, which is a cash outflow and a negative number as stated on line 13. Net
Cash Flows from Financing Activities, Line 14, is a negative $10,500.
Now, we combine the three sections of the cash flow statement to see where the firm is
from a cash flow perspective. When you sum the net cash flows from each section (line
15), you get a positive $10,000. This is the net increase in cash flows over the year for the
business firm. Looking back at the cash account on the comparative balance sheets, the
analysis is correct. Cash has increased by $10,000 from year to year.
Another calculation you will want to make is that of free cash flow.
XYZ Company Statement of Cash Flows

XYZ Company Statement of Cash Flows
1.Net Income $ 110,500
2.Depreciation 50,000
3.Inc in Accts Rec (30,000)
4.Inc in Inventory (20,000)
5.Dec in Prepaid Exp 10,000
6.Inc in Accts Payable 35,000
7.Dec in Accruals (5,000)
8.Net Cash Flows from operating activities $150,500
9.Inc in Investments (30,000
10.Inc in Plant & Equipment (100,000)
11.Net Cash Flows from investing activities (130,000)
12.Inc in LT Bank Loans 50,000
13.Dividends Paid (65,000)
14.Net Cash Flows from financing activities (10,500)
15.Net increase in cash flows $10,000
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What distinguishes the two is accrual accounting, which is found on the income
statement. Accrual accounting requires companies to record revenues and expenses when
transactions occur, not when cash is exchanged. At the same time, the income statement,
on the other hand, often includes non-cash revenues or expenses, which the statement of
cash flows does not include.
Just because the income statement shows net income of $10 does not means that cash on
the balance sheet will increase by $10. Whereas when the bottom of the cash flow
statement reads $10 net cash inflow, that's exactly what it means. The company has $10
more in cash than at the end of the last financial period. You may want to think of net
cash from operations as the company's "true" cash profit.
Because it shows how much actual cash a company has generated, the statement of cash
flows is critical to understanding a company's fundamentals. It shows how the company
is able to pay for its operations and future growth.
Indeed, one of the most important features you should look for in a potential investment
is the company's ability to produce cash. Just because a company shows a profit on the
income statement doesn't mean it cannot get into trouble later because of insufficient cash
flows. A close examination of the cash flow statement can give investors a better sense of
how the company will fare.
Three Sections of the Cash Flow Statement

Companies produce and consume cash in different ways, so the cash flow statement is
divided into three sections: cash flows from operations, financing and investing.
Basically, the sections on operations and financing show how the company gets its cash,
while the investing section shows how the company spends its cash. (To continue
learning about cash flow, see The Essentials Of Cash Flow, Operating Cash Flow: Better
Than Net Income? and What Is A Cash Flow Statement?)
Cash Flows from Operating Activities

This section shows how much cash comes from sales of the company's goods and
services, less the amount of cash needed to make and sell those goods and services.
Investors tend to prefer companies that produce a net positive cash flow from operating
activities. High growth companies, such as technology firms, tend to show negative cash
flow from operations in their formative years. At the same time, changes in cash flow
from operations typically offer a preview of changes in net future income. Normally it's a
good sign when it goes up. Watch out for a widening gap between a company's reported
earnings and its cash flow from operating activities. If net income is much higher than
cash flow, the company may be speeding or slowing its booking of income or costs.
Cash Flows from Investing Activities

This section largely reflects the amount of cash the company has spent on capital
expenditures, such as new equipment or anything else that needed to keep the business
going. It also includes acquisitions of other businesses and monetary investments such as
money market funds.
You want to see a company re-invest capital in its business by at least the rate of
depreciation expenses each year. If it doesn't re-invest, it might show artificially high
cash inflows in the current year which may not be sustainable.
Cash Flow From Financing Activities

This section describes the goings-on of cash associated with outside financing activities.
Typical sources of cash inflow would be cash raised by selling stock and bonds or by
bank borrowings. Likewise, paying back a bank loan would show up as a use of cash
flow, as would dividend payments and common stock repurchases.
Cash Flow Statement Considerations:

Savvy investors are attracted to companies that produce plenty of free cash flow (FCF).
Free cash flow signals a company's ability to pay debt, pay dividends, buy back stock and
facilitate the growth of business. Free cash flow, which is essentially the excess cash
produced by the company, can be returned to shareholders or invested in new growth
opportunities without hurting the existing operations. The most common method of
calculating free cash flow is:
Ideally, investors would like to see that the company can pay for the investing figure out
of operations without having to rely on outside financing to do so. A company's ability to
pay for its own operations and growth signals to investors that it has very strong
fundamentals.
what is cash flow and funds flow? Difference between cash
and funds flow? methods of cash flow
Question Submitted By :: Guest I also faced this Question!! Rank Answer Posted By
Re: what is cash flow and funds flow? Difference between cash and funds flow?
methods of cash flow Answer
#1
Cash Flow Statement : Statement showing changes in inflow &
outflow of cash during the period.
Methods of cash flow:1.Direct Method : presenting

information in:Statement of A. operating Activities, B.
Investment Activities C.Financial Activities
2.Indirect Method :uses net income as base & make
adjustments to that income(cash & non-cash)transactions.
Funds Flow Statement :Statement showing the sorce &

application of funds during the period.
Major Difference:
The CFS allows investors to understand how a company's

operations are running, where its money is coming from, and
how it is being spent.
FFS is showing the fund for the future activites of the

Company.
CMA Kiran
Is This Answer Correct ? 403 Yes 68 No

3
Cma Kiran Kumar K.v.
#2
Cash flow is nothing but flow of cash during a particular
period of time. It is a strong Analysis tools used by Large
and medium scale companies to make Analysis of Inflow and
Outflow of money during a particular period of time. Now a
days even small scale industries are using this tools.
Fund Flow shows the flow of money from different Activities.

This helps the management to make analysis of the FLow of
funds from activities such as Operating Activites,
Investment Activities, Financing Activities etc.,.

3
Vijay Gawalkar
#3
Cash flow is the inflow & outflow of cash during an
accounting period.
fund flow statment is a report which explains the movement

of funds, during an accounting period.
difference:
shows the causes of changes in net working capital. there

are no opening or closing balances. deals with all
components of working capital.
shows the causes for the changes in cash.started with the

opening and closing balances of cash. deals only with cash.
methods:
operating activities.
investing activities.
financing activities.

3
Vinotha.v
#4
cash flow statement is a statement of changes in csah
position.it is a prepare on cash basis,in other hand it is
a statement of inflow outflow cash during specipic
period,fund means net working capital.nwc=c.a-c.l,fund flow
statement is a statement of changes in financial
position,it is prepare on working capital.
methods
statement
t-form,account form

4
Ramana Mfm
#5
Cash flow simply means a factual presentation of cash
inflows and outflows.This will give a clear picture of cash
and cash equivalents movement during a period of time. On
the other side fund flow is broader term which never
confine to cash movemnts only but this will show the
sources & application of funds and its movements over a
period of time.The major key aspect of fund flow is its
working capital presentation.Business operations can
easily be analysed through pointing out the movements of
working capital.The key decisions of management which
affect capital structure can be planned by utilising data
presented in fund flow statement through making a
comparison of working and fixed capital which will enable
progessive growth in prospective environment.

5
Titus-chartered Accountant.
#6
statement showing inflows and outflows of cash/funds during
a particular period
sripal
hope this helps u

thanq

1
Sripalbasava
[Student] Re: what is cash flow and funds flow? Difference between cash and
funds flow? methods of cash flow Answer
#7
Cash flow statement is one of the tool for cash mgt it shows
cash inflows and out flows of a firm during the period.
cash flow statement may be defined it is statement which
summarise sources of cash inflows and uses of cash outflows
of a firm.
according to sebi guidelines are listed co's have to be
presented their cash flow statement in the annual report of
the co.
cash flow statement will prerpare in 3 types of methods
-- netprofit before tax & extraordinary items
-- cash from trading operations.
-- cash flow statement.

0
Ravichandra
#8
Cash flow statement is only concerned with cash generated
activities.
while fund flow statement shows actual position of business

(i.e. Net working position of the business) that shows how
sources arises of funds and how applications on funds are
made there on.

0
Amit Ved
#9
i am asking diffrece bitween cash and fund.

0
Harinath
# 10
1) Cash flow is a statement which shows cash inflow and
outflow of cash during a particular period of time. Where
as funds flow is a statement which shows inflow and outflow
of funds.
2) Cash flow shows the liquidity of the company, where as

funds flow shows how the company can invest in future.

0
Ujji Ravi Kumar
# 11
Cash flow statement shows the actual cash flow of a
company. This summarrise the data of cash or cash related
activities only.
funds flow statements shows that where the funds have been
generated & where they have been utilised. thus funds means
current assets & currents liabilities of a company.If
current assets are more that current liabilities that
working capital of a company willbe increased & if current
liabilities are more that current Assets it will be
decrease.thus fund flow shows the reason of change in
working capital.
this is a statement of sources & uses of application of

funds.the sources are funds from operation,sale of fixed
assets,issue of share capital & debenture,non operating
receipts. Uses are purchase of fixed assets,redemption of
prefence shares & Debentures,Loss on sale of fixed
assets,loss from operations etc.

0
Rajesh Jain
# 12
cash is used in the cash flow statement refers cash & bank
balances excluding of all current assets & current
liabilities

0
N.shankar Nath
# 13
Waht is Funds Flow Statement?
Funds flow statement refers where got & where gone the
funds. Funds flow statement showing sourse of funds &
application of funds and showing differance between all
current assets & current liabilities.
Example, Funds from Business Operation, Long Term Loans and

Sale of Fixed Assets.

0
N.shankar Nath
# 14
Cash flow stayement is preapred on regular basis which
gives the details of cash receipts and expenses i.e.,
payments incurred on daily basis to run the busines.
Funds flow statment is preapred on monthly basis which a

broad idea to the management the sorce and quatum of funds
put to used in business and the funds invested.
the difference between the both statement is Cash flow

statement will give idea about the expenses need on day to
day basis and Funds flow statement give the managment how
healthy is the business going.
0
T. Srinivas
# 15
Cash flow statement is showing receipts and payments for
during the period.
Where as funds flow is sources and application of funds,

ie. is increasing/decreasing net working capital.

1
B.kodanda Ramaiah
# 16
cash flows shows from where the cash has been genarated and
where it has been applied.
The basic difference between cash flow and fund flow is
cash flows indicates the flows of cash, on the other hand
fund flow shows the flows of funds including cash fows.
So we can say that fund flow is the integration of
cash ,fund flows,& cash flow is the differentiation of fund
flow.

5
Soumojit Dutta
# 17
A distinction between these two statements may be briefed
as under:-
(i) Funds Flow Statement is concerned with all items

constituting funds (Working Capital)for the business while
Cash Flow Statement deals only with cash transactions. In
other words, a transaction affecting working capital other
than cash will affect Funds statement, and not the Cash
Flow Statement.
(ii) In Funds Flow Statement, net increase or decrease in

working capital is recorded while in Cash Flow Statement,
individual item involving cash is taken into account.
(iii) Funds Flow statement is started with the opening cash

balance and closed with the closing cash balance records
only cash transactions.
(iv) Cash Flow Statement is started with the opening cash
balance and closed with ht closing cash balance while there
a no opening or closing balances in Funds Flow Statement
Cash Flow Statement : Statement showing changes in inflow &

outflow of cash during the period.
Methods of cash flow:

1.Direct Method : presenting information in Statement of
A. operating Activities
B. Investment Activities
C.Financial Activities
2.Indirect Method :uses net income as base & make

adjustments to that income(cash & non-cash)transactions.
Funds Flow Statement :Statement showing the source &

application of funds during the period.
Major Difference:
The Cash Flow S tatement allows investors to understand how

a company's operations are running, where its money is
coming from, and how it is being spent.
Fund Flow Statement is showing the fund for the future

activites of the Company

0
Vinay
# 18
Cash flow means in & out of cash income & expenses
Fund flow means source of fund & application of fund

0
Iqbal Mansuri
# 19
Fundflow is a statement which discribe the financial
streanth and Weakness of the company whereas cash flow
statements discribe the movements of cash during the
financial year also describe liqudity position of the
company.
5
Subash Kumar.s
# 20
cash flow of a firm is the amount of cash on which a company
can perform its normal activities.
while fund flow is base on the working capital of the firm.
In 1988 fund flow is discarded from the daily practice. now
cash flow is the only practice is in use.

0
Muhammad Usman- Student
# 21
1.fund flow statement is prepared on the accrual basis of
accounting(i.e weather cash realized or not )where as in
cash flow statement data is obtained in accrual basis are
converted into cash basis.
2. funds flow statement checks and tallies the funds raised
from various sources and uses or applications of those funds
in a given period of time.cash flow statement reconciles the
opening bal. of cash with the closing bal. of cash by
proceeding through cash flows from operating ,investing and
financing activities .
3.fund flow statement is a broader concept which is based on
the working capital ,where as cash flow statement is based
on the flow of cash which is one of the element of working
capital .

0
Rajeev Lochan Mahunta
# 22
Q. what is the cash flow statemnet and fund flow statement
A. cash folw statement are showing all inflow and outflow
of an company or firms during the period
fund flow statement are showing resources and

application of the fund that is the show accurate position
of an firms. cahs and fund flow statemet is the concern
with financial activity and both are depend upon
balancesheet of the end of the financial years
cash flow statement show only inflow and outflow of the
company
when fund flow statemnet show all activity of the an
company
so that is the lot of difference between cash flow
statement and fund flow statement
this is the according my opinion

0
Rohit Kumar Pawecha
# 23
fund flow statement shows increases or decrease working
capital for a period while cash flow show cash transaction
in which where we receipt cash and where we spend this
2 cash flow is relating only short time and fund flow

relating to long time

0
Suman Lata
# 24
cash flow: the basic purbose of cash flow is to provide
infomation about the cash recipt and cash payment of a
business entity during the accounting period.
in adition,the statement is indent to provide information
about the investing and financing activities of the company
during period.
meaning of cash flow:

its a statement which reflects source
and uses of cash.
scope:
its limite statement is based on the narrow concept
of fund
components: cash is an important factor and its part of

working capital.
object:
its prepared to disclose only changes in cash
position.
no of stages: under cash flow statement, only one statement

is prepared.
opening and closing balance of cash:

in this statement cash
balance is shown(opening and closing)
uses: the cash flow statement is in financial analysis and

cash planning
fund flow statement:

fund flow is that reflect changes in
the working capital or fund.
scope:
the fund is broaded term. it is wider concept of fund.
component:
the fund or working capital includes cash,stock,
deptors,bills and temporary investment.
object:
fund flow statement is prepared to depict the changes
in working capital between two balance sheet dates.
no of statements;
two statements are prepared 1.working
capital changes
2.statement of source and uses of fund.
opening and closing of fund:

there is no place for showing
opening and closing balance of cash and fund flow statement.
uses:
in mid-term and long-term planning,fund flow
statement is useful.

0
Mn.shahul Hameed
# 25
CASH FLOW STATEMENT: It is a statement which depicts the
change in the cash position (i.e cash and bank balance) of
a concern between one balance sheet and another.
FUND FLOW STATEMENT: It is a statement which shows how the

net working fund or working capital is obtained and how it
is put to use.
DIFFERENCES BETWEEN CASH FLOW STATEMENT AND FUND FLOW

STATEMENT ARE AS FOLLOWS:
1.Cash Flow statement is based on cash concept of fund

whereas Fund Flow statement is based on working capital
concept of fund.
2.Cash Flow statement depicts the changes in the cash
position of an enterprise between two balance sheet periods
whereas Fund Flow statement depicts the changes in the
working capital position of an enterprise between two
balance sheet periods.
3.Cash Flow statement deals with the inflow and outflow of

only cash, which is just one of the items of working
capital whereas Fund Flow statement deals with all the
items of working capital.
4.Cash Flow statement is only a supplementary statement

whereas Fund Flow statement is a main statement.
5.Cash Flow statement starts with the opening cash balance

and ends with closing cash balance whereas Fund Flow
statement does not start with any opening balance and does
not end with any closing balance.

Cash Flows

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XYZ Company Statement of Cash Flows

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Three Sections of the Cash Flow Statement

Cash Flows from Operating Activities

Cash Flows from Investing Activities

Cash Flow From Financing Activities

Cash Flow Statement Considerations:

Methods of cash flow:1.Direct Method : presenting

Funds Flow Statement :Statement showing the sorce &

The CFS allows investors to understand how a company's

FFS is showing the fund for the future activites of the

Is This Answer Correct ? 403 Yes 68 No

Fund Flow shows the flow of money from different Activities.

Is This Answer Correct ? 152 Yes 225 No

fund flow statment is a report which explains the movement

shows the causes of changes in net working capital. there

shows the causes for the changes in cash.started with the

Is This Answer Correct ? 94 Yes 50 No

Is This Answer Correct ? 74 Yes 27 No

Is This Answer Correct ? 111 Yes 12 No

hope this helps u

Is This Answer Correct ? 27 Yes 76 No

Is This Answer Correct ? 31 Yes 32 No

while fund flow statement shows actual position of business

Is This Answer Correct ? 37 Yes 17 No

Is This Answer Correct ? 33 Yes 24 No

2) Cash flow shows the liquidity of the company, where as

Is This Answer Correct ? 35 Yes 17 No

this is a statement of sources & uses of application of

Is This Answer Correct ? 65 Yes 9 No

Is This Answer Correct ? 16 Yes 12 No

Example, Funds from Business Operation, Long Term Loans and

Is This Answer Correct ? 17 Yes 9 No

Funds flow statment is preapred on monthly basis which a

the difference between the both statement is Cash flow

Where as funds flow is sources and application of funds,

Is This Answer Correct ? 19 Yes 4 No

Is This Answer Correct ? 17 Yes 6 No

(i) Funds Flow Statement is concerned with all items

(ii) In Funds Flow Statement, net increase or decrease in

(iii) Funds Flow statement is started with the opening cash

Cash Flow Statement : Statement showing changes in inflow &

Methods of cash flow:

2.Indirect Method :uses net income as base & make

Funds Flow Statement :Statement showing the source &

The Cash Flow S tatement allows investors to understand how

Fund Flow Statement is showing the fund for the future

Is This Answer Correct ? 62 Yes 1 No

Is This Answer Correct ? 23 Yes 4 No

Is This Answer Correct ? 10 Yes 2 No

Is This Answer Correct ? 13 Yes 3 No

fund flow statement are showing resources and

Is This Answer Correct ? 8 Yes 2 No

2 cash flow is relating only short time and fund flow

Is This Answer Correct ? 14 Yes 2 No

meaning of cash flow:

components: cash is an important factor and its part of