Balance Sheet vs Cash Flow Statement

Balance sheet and cash flow statement are both important financial statements which are very necessary for any corporate to make. At the end of the year, both statements are prepared to show correct financial health.



There are many differences between balance sheet and cash flow statements which we can explain on the basis of following points.

1. Meaning

Balance sheet - Balance sheet is the statement which shows the assets and liabilities of any organisation. One side, we show all the assets and other side, we show all the liabilities, difference between this will be shareholders' equity capital.

Cash flow statement - Cash flow statement is the statement which shows the inflow and out flow of cash. In different activities, we either receive or pay the activities. Difference between inflow and outflow cash will show net balance of cash in hand.

2. Benefit 

Balance sheet is made to find the real financial position of company. For example, A company has lots of long term debt but there is low amount of fixed asset and debt equity ratio is so high. From this point, we can estimate, there is not good financial position of company.

Cash flow statement is made to find the real capacity to pay bill, debt and expenses of company. If company's cash inflow is so high, company can do more business. Because with this, it can easily pay its bill. Even if company has big net profit but outflow of cash is high than inflow of cash, cash flow statement can tell us lots of net profit which is not in cash, are not getting fast. So, due to the shortage of cash, we can capture in big problem.

3. Method of Making 

We can make balance sheet with vertical or horizontal method.

We can make cash flow statement with direct or indirect method.

4. Parts 

Balance sheet has three major parts. One is assets, second is liabilities and third is equity capital.

Cash flow has also three major parts. Operating activities, financial activity and investing activities.

5. Formula

Balance sheet »  Assets = Outside liabilities + Equity capital

Cash flow statement »  Net cash flow from operating activities + Net cash flow from financial activities + Net cash inflow from investing activities.

Resource : Difference Between Similar Terms

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Accounting Education: Balance Sheet vs Cash Flow Statement
Balance Sheet vs Cash Flow Statement
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