We, as an accountant running an accounting firm in Johor Bahru, always received queries from clients on what different financial statements aim to offer. Today, we will be sharing the key differences between the cash flow statement and the Balance Sheet.
The cash flow statement is a financial statement that discloses the cash movement of the business throughout the financial year. It is handy for the investors to gain more insight into how the business spends its cash and sources of cash in a particular year from various activities (Also see Typical Accounting Errors You Want To Avoid).
On the flip side, the balance sheet is the statement that illustrates the complete financial position of the organisation by revealing the balances of liabilities, funding, assets of the business at the end of the reporting date. In this post, we will certainly discuss some distinctions in between the cash flow statement as well as the balance sheet (Also see Distinction between Managerial and Financial Accounting).
- Balance sheet discloses all the liabilities as well as the assets of the business, whereas cash flow statement gives information on the flows of the cash throughout the financial year.
- A balance sheet is a snapshot of a specific day, usually after the conclusion of a financial period while the cash flow statement covers a particular period.
- One of the most vital distinctions in between the two is that the balance sheet is mainly categorised into two components, yet the cash flow statement is categorised right into three areas.
- The Balance Sheet supplies information concerning the business’s financial strength, whereas the cash flow statement offers insights on the efficiency and liquidity of the organisation.
- The cash flow statement is compiled based on specific inputs in the balance sheet. The balance sheet, on the other hand, does not base upon the cash flow statement but instead just providing inputs.
Both of these statements, in particular, the balance sheet and the cash flow statement are both needed for the business to comprehend the performance of the business. The more advanced financial analysis (Also see Capital Budgeting in Business Investments) relies on both to form a relationship on various aspect of the financial health of a company. The cash flow statement provides a fuller picture of the cash movement of the fiscal year while the balance sheet reveals the assets possessed by the organisation along with the liabilities owed by the business.