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Difference Between Balance Sheet and Cash Flow Statement

The balance sheet and cash flow statement are two of the most important components of financial management for class 11 and 12 commerce students.

Jatin Sharma30 Jan, 2024

Difference Between Balance Sheet and Cash Flow Statement

Balance Sheet and Cash Flow Statement are pivotal tools in financial management, offering crucial insights into a company's financial health. The Balance Sheet provides a snapshot of the company's financial position at a specific moment, detailing Assets and Liabilities . On the other hand, the Cash Flow Statement tracks cash inflows and outflows over a defined period, offering a dynamic view of liquidity.

These statements, while distinct, serve as valuable resources for stakeholders, helping them understand a company's overall financial status. Explore the differences between a Balance Sheet and Cash Flow Statement to enhance your Commerce Accountancy Exam preparation .

What is a Balance Sheet?

A Balance Sheet is like a financial overview of a business, showing its assets, equity, and liabilities. Every business, whether a partnership or sole proprietorship, uses it to reveal its financial health. In a Balance Sheet, there are two main sections: assets (like inventory and accounts receivable), equity (including share capital and capital surplus), and liabilities (such as accounts payable and bank loans). The liabilities section covers shareholder's equity, current and non-current liabilities, while the equity section encompasses current and non-current assets. It's a way to gauge the financial security of a business.

Also Read: Balance Sheet Equation

What is a Cash Flow Statement?

A Cash Flow Statement is a report detailing the movement of cash and cash equivalents during a specific timeframe. Simply put, it summarizes where cash comes from and where it goes, explaining changes in the cash balance between two balance sheet dates. (Note: 'cash' refers to cash & cash equivalents.) To create a cash flow statement, you need two comparative balance sheets of a company. It includes only items that impact cash. Cash Flow Statements are categorized into three activities:

Operating Activities: These involve cash sources and uses from the core business, helping assess a company's net profit or loss.
Investing Activities: Covers the buying and selling of investments and Fixed Assets not for resale. It also reveals expenditures for resources generating future income.
Financing Activities: Encompasses activities altering a company's capital and borrowings. Cash Flow from Financing Activities aids lenders in estimating future claims on cash flows by analyzing changes in equity, preference share capital, debentures, and various borrowings.

Also Read: What Is Operating Cash Flow?

Difference between Balance Sheet and Cash Flow Statement

Here's a detailed table showing the difference between the Balance Sheet and the Cash Flow Statement:

Difference Between Balance Sheet and Cash Flow Statement
Parameters	Balance Sheet	Cash Flow Statement
Meaning	A detailed representation of the entity's assets, liabilities, and equity. Outlined by every enterprise, sole proprietorship firm, or partnership enterprise. Reveals the financial security of the enterprise.	A financial statement presenting total data concerning complete cash inflows a business gains from its continuing progress and external financing sources, as well as all cash withdrawals used to pay for trade activity and financing during a specified time.
Categorized into	2 sections	3 sections
Components	Assets, Liabilities, and Equity of Stakeholders.	Operating Cash Flow, Investing Cash Flow, and Financing Cash Flow.
Basis	Outlined considering P&L account.	Outlined while considering both the profit and loss account and the balance sheet.
Purpose	Used to display the company's financial situation on a given day.	Used to have information about the cash inflows and outflows during a specific period.
Focus	Primarily, it focuses on the financial status at a given period.	Focuses on monetary transactions throughout a specified period.
Accounting Parameter	Includes both cash and non-cash transactions.	Includes only cash-based transactional transactions.
Usage	Assists stakeholders in assessing the financial liquidity and general stability of the organisation.	Assists in evaluating the company's cash generation and management skills.
Importance	Reveals the financial status of an enterprise.	Helpful in predicting and budgeting.
Limitations	Does not provide a detailed view of cash flows during the reporting period.	Does not offer a thorough view of the company's financial situation.
Presentational Format	Presented in 2-column horizontal format with the assets on one side and liabilities & equity on another side and also in 2-section vertical format with liabilities first and assets afterwards.	Presented in three sections: cash flows from operating, investing, and financing operations.

Also Read: Balance Sheet Vs Profit and Loss Account

Furthermore, the Balance Sheet offers an overview of a company's financial position, while the Cash Flow Statement provides a dynamic overview of cash movements. Both are crucial for assessing a company's stability and financial health, offering unique insights into its operations. Moreover, PhysicsWallah (PW) is a top-tier coaching institute, that excels in commerce education. Renowned for innovative teaching methods and a dedicated faculty, PW has become a go-to choice for commerce students, delivering quality education and empowering them for success in their exams. Join the PW Commerce Online Course now and accelerate your success in commerce exams!

Commerce Related Topics
Index Numbers	Likert Management System	Joint Venture (JV)	Types of Insurance
Fiscal Policy	Father of Economics	Endorsement of Instruments	Cost Sheet Format

Balance Sheet and Cash Flow Statement FAQs

What's the difference between a balance sheet and a cash flow statement?

A balance sheet is like an overview showing what a company owns and owes, while a cash flow statement is more dynamic, detailing how cash moves in and out during a specific period. Also, for more detailed information on the Difference Between Balance Sheet and Cash Flow Statement, check the above article.

What are the 3 financial statements?

The three essential financial statements are the income statement, balance sheet, and statement of cash flows. Together, they provide a comprehensive view of a company's financial strength. Also, for more detailed information on the Difference Between Balance Sheet and Cash Flow Statement, check the above article.

Do you need a balance sheet for a cash flow statement?

There are two common ways to create a cash flow statement. The direct method uses actual cash transactions, while the indirect method starts with the Profit & Loss statement and balance sheet. Also, for more detailed information on the Difference Between Balance Sheet and Cash Flow Statement, check the above article.

What are the 3 types of cash flow statements?

The cash flow statement categorizes cash flows into three types: operating activities, investment activities, and financing activities. Also, for more detailed information on the Difference Between Balance Sheet and Cash Flow Statement, check the above article.

What is the purpose of a balance sheet?

A balance sheet reveals a company's assets, liabilities, and equity. It helps assess a company's ability to meet short-term needs, fulfil debt obligations, and distribute profits to owners. Also, for more detailed information on the Difference Between Balance Sheet and Cash Flow Statement, check the above article.

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What is a Balance Sheet?

Also Read: Balance Sheet Equation

What is a Cash Flow Statement?

Operating Activities: These involve cash sources and uses from the core business, helping assess a company's net profit or loss.
Investing Activities: Covers the buying and selling of investments and Fixed Assets not for resale. It also reveals expenditures for resources generating future income.
Financing Activities: Encompasses activities altering a company's capital and borrowings. Cash Flow from Financing Activities aids lenders in estimating future claims on cash flows by analyzing changes in equity, preference share capital, debentures, and various borrowings.

Also Read: What Is Operating Cash Flow?

Difference between Balance Sheet and Cash Flow Statement

Here's a detailed table showing the difference between the Balance Sheet and the Cash Flow Statement:

Difference Between Balance Sheet and Cash Flow Statement
Parameters	Balance Sheet	Cash Flow Statement
Meaning	A detailed representation of the entity's assets, liabilities, and equity. Outlined by every enterprise, sole proprietorship firm, or partnership enterprise. Reveals the financial security of the enterprise.	A financial statement presenting total data concerning complete cash inflows a business gains from its continuing progress and external financing sources, as well as all cash withdrawals used to pay for trade activity and financing during a specified time.
Categorized into	2 sections	3 sections
Components	Assets, Liabilities, and Equity of Stakeholders.	Operating Cash Flow, Investing Cash Flow, and Financing Cash Flow.
Basis	Outlined considering P&L account.	Outlined while considering both the profit and loss account and the balance sheet.
Purpose	Used to display the company's financial situation on a given day.	Used to have information about the cash inflows and outflows during a specific period.
Focus	Primarily, it focuses on the financial status at a given period.	Focuses on monetary transactions throughout a specified period.
Accounting Parameter	Includes both cash and non-cash transactions.	Includes only cash-based transactional transactions.
Usage	Assists stakeholders in assessing the financial liquidity and general stability of the organisation.	Assists in evaluating the company's cash generation and management skills.
Importance	Reveals the financial status of an enterprise.	Helpful in predicting and budgeting.
Limitations	Does not provide a detailed view of cash flows during the reporting period.	Does not offer a thorough view of the company's financial situation.
Presentational Format	Presented in 2-column horizontal format with the assets on one side and liabilities & equity on another side and also in 2-section vertical format with liabilities first and assets afterwards.	Presented in three sections: cash flows from operating, investing, and financing operations.

Also Read: Balance Sheet Vs Profit and Loss Account

Commerce Related Topics
Index Numbers	Likert Management System	Joint Venture (JV)	Types of Insurance
Fiscal Policy	Father of Economics	Endorsement of Instruments	Cost Sheet Format