A balance sheet is the summary of the financial balances of a company, while a cash flow statement shows how the changes in the balance sheet accounts - and income on the income statement - affect a companys cash position.
How the Balance Sheet and Cash Flow Statement Differ? How the Balance Sheet and Cash Flow Statement Differ?
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The basic difference between the balance sheet & cash flow statement are listed below;
- In the balance sheet, a company’s financial status or even an individual for a particular period.
- The balance sheet is also called a Statement of financial position or statement of financial condition.
- Generally, it is calculated for a year.
Cash Flow Statement:
- In the case of cash flow statement, the money flows in and out of business for a concise period
- The cash flow statement is also called a statement of cash flow.
- It is generally calculated for a short period, like three months.
The basic difference between the balance sheet & cash flow statement are listed below; Balance Sheet:
In the balance sheet, a company's financial status or even an individual for a particular period. The balance sheet is also called a Statement of financial position or statement of financial condition. Generally, it is calculated for a year.
Cash Flow Statement:
In the case of cash flow statement, the money flows in and out of business for a concise period The cash flow statement is also called a statement of cash flow. It is generally calculated for a short period, like three months.
|Balance sheet||Cash flow statement|
|It is a financial statement prepared at a certain date to depict the financial position of the entity at that pt of time.||It is the financial statement that reflects the position of cash in the business by indicating where the cash has come from & where cash has gone to.|
|It reflects Assets & Liabilities.||It reflects cash inflow & outflow|
|Classifies in 2 parts.||Classifies in 3 parts, Operating, Investing & Financing.|
|Helps in disclosing financial position.||Helps in budgeting & forecasting.|
|It is prepared after P&L account.||It is prepared after P&L a/c & balance sheet.|
|It summarizes assests, liability & shareholders equity.||It summarizes cash movement & equivalent.|
|It is prepared at a pt of time.||It is prepared at a period of time.|
|It is based on Accrual system of accounting.||It is based on Cash system of accounting.|
The profit and loss account and cash flow statement are introductory presentations of the company’s activities. And they are straightforward to understand.
a) Profit and loss statement: All you need to remember is that whatever income is received by the company is written on credit (right) side. Whatever expense is incurred by the company is written on the debit (left) side of the statement. The key figures on the right side to focus are sales revenue and any other income the organization has earned during that period. It is essential to observe the primary sources of payment for the company. Naturally, on a bank’s P&L account, it would be mainly interest received from loans and advances, and investments. For a manufacturing organization, it should be sales proceeds from its products and other ancillary services. Similarly, the debit (left) side shows the expenses/losses incurred by the organization during that period. You may focus on a particular kind of payments like personnel cost, cost of materials, advertising and marketing expenditure, etc.
b) Cashflow statement is slightly more technical in its composition than profit and loss account. It consists of mainly 3 parts:
1) Operating activities (core business activities),
2) Investing activities representing investments made by the company, and
3) Financing activities representing the capital structure of the company.
Consider this. Walmart sells wares on its online portal. But it needs money to run its operations. So, say it raises $ 1 million from some source. Now, it invests $ 0.5 million from the amount in building the online infrastructure and logistics network and uses $ 0.5 million in the routine operations of the firm. > 1 million raised will be a part of financing activities in CFS. > o.5 million used in advertisement will be a part of investing activities in CFS. > 0.5 million used in daily operations will be a part of operating activities in CFS.
How the Balance Sheet and Cash Flow Statement Differ?
A balance sheet is a summary of the financial balances of a company, while a cash flow statement shows how the changes in the balance sheet accounts–and income on the income statement–affect a company’s cash position. In other words, a company’s cash flow statement measures the flow of cash in and out of a business, while a company’s balance sheet measures its assets, liabilities, and owners’ equity.
Balance Sheet, on the other hand, is the statement which reveals the overall financial strength of the concern by showing the balances of assets, liabilities, and capital of the enterprise at a given date. In this article, we have discussed some noteworthy differences between Balance Sheet and Cash Flow Statement.
Cash flow Statement is as important as the other two parts (Profit & Loss Account and Balance Sheet) of the accounting information furnished in the form of financial statements at the end of the financial year. It is the statement which describes the flow of cash and cash equivalents in and out the organization. The statement is helpful to the stakeholders or say interested parties, in learning about the sources and uses of the company’s cash during a particular financial year, from different activities.
Key Differences between Balance Sheet and Cash Flow Statement
- A Balance Sheet is a snapshot of assets possessed and outstanding liabilities of the entity. Cash flow statement reflects the movement of cash during the year.
- A Balance Sheet is prepared for a specific date, usually after the completion of the financial year, whereas Cash flow statement is made for a particular period.
- The significant difference between the two entities is that the Balance Sheet is classified into two sections while the Cash flow statement is classified into three parts.
- The Balance Sheet provides the information about the company’s financial position. On the contrary Cash flow statement provides the information about the company’s liquidity and stability.
- The Cash flow statement is prepared on the basis of the balance sheet, but the Balance Sheet is not prepared on the basis of Cash Flow Statement.
Comparison Table Between Balance Sheet and Cash Flow Statement (in Tabular Form)
|Parameter of Comparison||Balance Sheet||Cash Flow Statement|
|What is it?||The financial status of an individual or a company for a particular period||Money flows in and out of the business for a short period.|
|Also Known as||Statement of financial position or statement of financial condition||Statement of cash flows|
|Usually calculated for||a year||a short period such as three months|
|Few Standards to deal with||Generally Accepted Accounting Principle(GAAP), Federal Accounting Standards Advisory Board(FASAB)||International Accounting Standard 7(IAS 7)|
|Previously known as||None||The flow of Fund Statements|
|Income is termed as||Assets and ownership||Cash Inflow|
|Expenses are termed as||Liabilities||Cash Outflow|
|Formula to calculate||Assets – (Liabilities + Shareholders Equity)||Cash inflow – Cash Outflow|
Balance Sheet: Balance Sheet is define as ” It is simply a list of business’s assets and liabilities at a given date and time”.
Balance sheet ia prepaared annually in most cases.It12 shows whether a business is going well or in a loss. If assests are greater than the liabilities of a any construction company’s, it is in profit mood. If liabilities are more than assets, the company is in loss or maybe going in loss.
Cash Flow Statement: Cash Flow is basically ” The incoming and outgoing of a money from a company’s account is called Cash flow statement”
So, Cash flow statement has two types
1- Positive Cashflow: When there is a more inflow of a money and less outflow in a company’s account. It is a good for the company as it is easy for it to pay salaries to engineers, labours and other employees.
2- Negative Cashflow: When there is less inflow and more outflow of a money in a company’s account. It may cause a great trouble for a company as company’s assets are decreasing day by day. It may unable to to continue construction activites and procurement of materials for project completion.