Balance sheet and cash flow statements are the two very common business terminologies that help a business in examining its financial status. Both these terms are often used interchangeably but there is an obvious difference between these two terminologies. In this article, we will get to know the complete differences between them. The blog has the following main topics.
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Definition Of Balance Sheet
A balance sheet refers to the statements of liabilities, assets, equity, and capital of a business entity or any other organization at a particular point in time, detailing the balance of income and spending or expenditure over the preceding and foregoing time. These statements are actually prepared with the aim of measuring the financial position of a business entity on a certain fixed date.
A balance sheet can be prepared at a particular date but not for a particular period. In a nutshell, a balance sheet actually shows the wealthiness of a business entity in monetary terms. The three main titles in a balance sheet are.
- Assets- Assets generally include all the items such as cash and cash equivalents, accounts receivable, inventories, copyrights, etc.
- Liabilities- Liabilities include the items like accounts payable(money a company will pay), shareholders’ equities, current and non-current assets, etc.
- Shareholder’s Equities- This is actually the business net worth that generally shows how much value shareholders, or owners, can assert from assets and how much they have invested in the business.
Definition Of Cash Flow
Cash Flow statements are generally prepared by businesses. These statements help them to know about the cash sources and uses of cash over a period of time from different activities and processes. This means that the cash flow statement is the financial data that provide the information related to the cash inflows that a business gains from its continued growth or progress and external financing sources, as well as cash outflows that pay for trading activities and accounting or financing. Cash flow involves the following activities.
- Operating Activities- These are related to the principal business activities like interest payments, receipts from sales, salaries, income tax payments, etc.
- Investing Activities- These are all the activities like purchasing and selling assets, loans created or received, etc.
- Financing Activities- These are the activities in which a business either increases capital or repays the debentures or shareholders.
Balance Sheet Vs Cash Flow Statement(Comparison Table)
|Basis For Difference||Balance Sheet||Cash Flow Statements|
|Definition||The balance sheet represents the accurate data of assets, equities, and liabilities of the entity.||Cash flow statements represent the cash inflow and cash outflow of a company or other organization.|
|Importance||It tells us the financial status of a business.||Cash flow is helpful in forecasting and budgeting|
|Facts/Data Disclosed||It discloses equities, assets, and liabilities.||It discloses the flow of cash and cash equivalent|
|Used By||Long-term investors||Short-term investors|
|Basis||It is arranged by taking profit and loss a/c into consideration.||It is prepared by taking p/l account and balance sheet into contemplation.|
Key Differences Between Balance Sheet And Cash Flow Statement
Some of the key differences between the balance sheet and cash flow statement are as follows.
- The balance sheet represents the accurate data of assets, equities, and liabilities of the entity. On the other hand, Cash Flow statements are generally prepared by businesses. These statements help them to know about the cash sources and uses of cash over a period of time from different activities and processes.
- A balance sheet is generally prepared for a specific date, usually after the completion of the financial year. On the other hand, cash flow statements are prepared for a specific period.
- A balance sheet reveals the financial status and position of a company or an organization. On the other hand, Cash flow provides all the data about stability and available means.
- Balance sheet reports and judges a business performance over the long term. On the other hand, cash flow is a short-run concept.
So, with all the above concepts and explanations, it is clear that the balance sheet represents the accurate data of assets, equities, and liabilities of the entity. On the other hand, cash flow is a short-run concept. These statements help them to know about the cash sources and uses of cash over a period of time from different activities and processes.
Both these are the tools that help a business or an organization in identifying its sustainability so that the individuals can carry further investments in that business. Also, both(balance sheet and cash flow) represent the companies in front of the stakeholders. So, this was all about the difference between balance and cash flow statements.