Funds Flow Statement and Income Statement | Financial Management

The funds flow statement and income statement have different functions and their main differences are summarized below:

Difference # Funds Flow Statement:

1. Funds flow statements main objective is to ascertain the funds generated from operations. It reveals the sources of funds and their applications.

2. Funds flow statement is prepared based on the financial statements of two consecutive years.

3. Funds flow statement takes into account not only the funds available from trading operations but also funds available from other sources like issue of share capital/debentures, sale of fixed assets etc.

4. Preparation of funds flow statement is not a statutory obligations and is left to the discretion of management.

5. Income statement is one of the source documents in preparation of funds flow statement.

6. Funds flow statement may be prepared much before business operations and act as an instrument of planning and control.

7. Funds flow statement can be prepared as and when management wants it.

8. Funds flow statement provides a complete record of transactions involving cash.

9. Funds flow statement cannot be easily manipulated by management.

Difference # Income Statement:

1. Income statements main objective is to ascertain the net profit earned or loss incurred by the company out of business operations at the end of particular period.

2. Income statement is prepared on the basis of nominal accounts of particular accounting period.

3. Income statement uses only income and expenditure transactions relating to trading operations of a particular period.

4. Preparation of profit and loss account is a statutory obligation and should be prepared in accordance with the legal requirements.

5. An income statement can be prepared without the help of a funds flow statement.

6. Income statement is static inasmuch as it gives information on what has happened during the period covered by it.

7. Income statement is prepared only at the end of accounting period for the period covered by it.

8. Income statement is prepared on accrual basis of accounting and fails to present the factual history of firm’s cash transactions.

9. The determination of periodic income is necessarily based on number of estimates, judgment and allocations and is subject to manipulations of management.