Balance Sheet vs Cash Flow Statement: Difference and Comparison

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.

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

Balance Sheet discloses the financial position of the company, and the Cash Flow Statement helps in budgeting and forecasting. Balance sheet is prepared for a specific day, after completion of the financial year, whereas the Cash Flow Statement is made for a particular period.

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 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 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
Considers money resulting from	Assets and liabilities	Operations, Investments and other financial activities
Used by	Long-term investors to avoid losses over a few years	Short-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, 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.

What is a Cash Flow Statement?

It represents the cash flow in and out of business and is 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.

   

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