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What is Balance Sheet?
If you are a businessman or an accounting student, you must be aware of the balance sheet. If not, we will discuss it in detail and its benefits to an individual or a company.
A balance sheet is a financial summary of the balance of an individual or a company. It is also called a statement of financial condition. It may be sole ownership, a business alliance, a corporation, or a private company.
The organization may be a government or a non-profit institution. It is an exact representation of assets, liabilities, and capital. It is submitted at the end of the year or every quarter.
It represents what a company owns in the form of assets. The balance sheet has two titles: assets and equity or financing. Equity has two parts: liabilities and ownership equity.
The assets are listed in the form of liquidity. The assets come after liabilities. The difference between assets and liabilities is an organization’s net worth or capital.
The balance sheet represents how assets were financed, whether by burrowing or owners’ money. To calculate the balance sheet, one must add total assets, liabilities, and shareholder equity.
What is Cash Flow Statement?
You must receive a cash flow statement if you have a bank account. This statement aims to inform the owner or a company of a complete picture of cash flow during a business.
The cash flow movement is an actual movement of money. It is an influx and outflow of cash in a company. It is a payment transferred from one bank to the other bank.
The cash flow calculates how a company generates cash for debt payment obligations. It provides data about all the transactions. It is divided into three categories.
Activities include generating cash flow by regularly delivering goods or services, including revenue and company expenses.
However, the investing activities cover cash flow from selling or purchasing assets, whether property or any physical or virtual assets.
In contrast to investing activities, financing features cash flow from debt and equity.
It helps business people to make decisions about their businesses and to invest. Moreover, companies’ cash flow exceeds the net income because a positive cash flow indicates a company’s growth.
Difference Between Balance Sheet and Cash Flow Statement
Most people ignore the balance sheet and cash flow statement. However, keeping an eye on cash inflow and the company’s assets is essential.
The balance sheet is a summary of financial balances which measures companies’ assets, liabilities, and owner’s equity, while in contrast to this, the cash flow shows the changes in the balance sheet of accounts.
The cash flow or income statement also affects the company’s cash position. It also measures cash inflow and outflow from an organization.
If the cash balance is higher than last year, it is a positive cash balance. If it decreases, then you need to take steps to improve your cash flow.
Comparison Table Between Balance Sheet and Cash Flow Statement
|Parameters||Balance sheet||Cash flow Statement|
|Definition||It is a precise indication of an organization’s assets, liabilities, and equity.||It is a financial statement that shows the influx and outflow of cash in a business or an organization.|
|Categories||It is divided into two categories like assets and equity.||It is divided into three categories Investing, Financing Operating activities.|
|Importance||It describes the financial status of an organization.||It helps in making budgets and taking important decisions for a business.|
|Data Disclosed||It indicates assets, liabilities, and equities.||It shows the cash flow of a company.|
|Basis||It is described when considering P&L accounts.||It is described while considering the P&L account and balance sheet.|