Difference Between Balance Sheet and Cash Flow Statement

The Balance Sheet and the Cash Flow Statement are two different financial terms, but they both help in judging the financial status of an individual or an organization. The former considers Assets, Liabilities and other owner equities, whereas the latter considers the cap inflow and outflow.

/10

Finance Quiz

Test your knowledge about topics related to finance

1 / 10

What is inflation?

2 / 10

What is a diversified portfolio?

3 / 10

Share capital is

4 / 10

Earnings per share show investors the __________ earned per outstanding share of stock.

5 / 10

What is the yield curve?

6 / 10

The method of converting the amount of future cash into an amount of cash and cash equivalents value in present is known as:

7 / 10

What is a bull market?

8 / 10

What is a bond yield?

9 / 10

What is a market capitalization?

10 / 10

What is a portfolio in finance?

Your score is

0%

Key Takeaways

  1. A balance sheet is a financial statement that shows a company’s assets, liabilities, and equity at a specific point in time.
  2. A cash flow statement is a financial statement that shows the inflows and outflows of cash and cash equivalents during a specific period.
  3. A balance sheet provides a snapshot of a company’s financial position, while a cash flow statement shows the movement of cash in and out of the company.

Balance Sheet vs Cash Flow Statement

The difference between a balance sheet and a cash flow statement is that a balance sheet is generally calculated for a year, and it pictures an organisation’s or individual’s long-term performance. A cash Flow Statement is usually calculated for three months or so and reveals that entity’s current performance.

Balance Sheet vs Cash Flow Statement

Want to save this article for later? Click the heart in the bottom right corner to save to your own articles box!

Long-term investors wishing to load some money on an organization and remain quiet for years consider the former to evaluate the firm’s business dealings. Mutual fund investors who buy and sell frequently evaluate Cash Flow Statements before investing their funds in a company.

So before choosing the financial tool, work on a few factors that are apt for you. Some of them are the period of investment(short-term or long-term), the readiness of cash, i.e., whether you need the cash to be readily available or as an asset, etc.

Let us look at their differences and uses them in detail below.

Comparison Table

Parameter of ComparisonBalance SheetCash Flow Statement
What is it?The financial status of an individual or a company for a particular periodMoney flows in and out of business for a short period.
Also Known asStatement of financial position or statement of financial conditionStatement of cash flows
Usually calculated fora yeara short period such as three months
Few Standards to deal withGenerally Accepted Accounting Principle(GAAP), Federal Accounting Standards Advisory Board(FASAB)International Accounting Standard 7(IAS 7)
Previously known asNoneThe flow of Fund Statements
Income is termed asAssets and ownershipCash Inflow
Expenses are termed asLiabilitiesCash Outflow
Formula to calculateAssets – (Liabilities + Shareholders Equity)Cash inflow – Cash Outflow
Considers money resulting fromAssets and liabilitiesOperations, Investments and other financial activities
Used byLong-term investors to avoid losses over a few yearsShort-term investors to generate money in a month or so

What is the Balance Sheet?

Balance Sheet represents the financial status of an individual or a company for a specified period, usually a year. It includes liabilities, assets and other ownership positions of the respective individual or the company.

The assets, in turn, can be fixed assets or current assets. Fixed assets include capital on a property or place that cannot be converted into money quickly. In contrast, current assets such as bank balances are ready-to-use cash or can be quickly converted to money.

It can also be calculated for government entities and non-profitable organizations. In a nutshell, the balance sheet clearly shows the wealth of the business in monetary terms.

balance sheet

What is a Cash Flow Statement?

It represents the cash flow in and out of business and is usually calculated for a short period. The cash flow statement helps judge the ability of an individual or an organization’s bill payment capability.

It is generally calculated and used by creditors who loan money, employees before joining an organization, company directors before answering the investor’s questions, etc. All these entities use this statement to ensure that the organization or the individual can handle money matters without fail.

The money that is an income for the business is considered Cash Inflow, whereas expenses are considered Cash Outflow.

Main Differences Between the Balance Sheet and Cash Flow Statement

  1. Balance Sheet reveals an organisation’s or individual’s financial status over a year, whereas Cash Flow Statement reveals the cash inflow and outflow over three months.
  2. The former is a weapon to judge an organization’s performance over the long term and the latter over the short term.
  3. Balance Sheet is also called as Statement of Financial Position. The Cash Flow Statement is a Statement of Cash Flows, previously called a Flow of Funds Statement.
  4. A few Standards follow the former Generally Accepted Accounting Principles (GAAP), Federal Accounting Standards Advisory Board(FASAB), etc., whereas the latter follows International Accounting Standard 7(IAS 7).
  5. Balance Sheet terms its income as Assets, and it’s termed as a Cash inflow in Cash Flow Statement.
  6. Liabilities is the name given to the expenses in the Balance sheet, whereas Cash outflow is in Cash Flow Statement.
  7. The former uses the formula [Assets – (Liabilities + Shareholders Equity)] whereas the latter uses the formula [Cash inflow – Cash Outflow] for their calculation.
  8. Balance Sheets considers the money resulting from assets & Liabilities, whereas Cash Flow Statement considers the money from operations, investments, and other financial activities.
  9. Long-term investors who wish to avoid losses over a few years generally use the Balance sheet to evaluate a company’s performance during the past years. Short-term investors who generate money by buying and selling frequently use Cash Flow statements to learn a company’s current performance.
Difference Between Balance Sheet and Cash Flow Statement

   

References
  1. https://search.proquest.com/openview/9f80d9b39b436a01b338ec57b113a828/1?pq-origsite=gscholar&cbl=41065
  2. https://go.gale.com/ps/anonymous?id=GALE%7CA19369688&sid=googleScholar&v=2.1&it=r&linkaccess=abs&issn=00076813&p=AONE&sw=w
One request?

I’ve put so much effort writing this blog post to provide value to you. It’ll be very helpful for me, if you consider sharing it on social media or with your friends/family. SHARING IS ♥️

Leave a Comment

Your email address will not be published. Required fields are marked *