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|