Fund Flow Statement

Analysis
 Financial Statements do not provide

• Information regarding changes in the firm’s financial

position during particular period of time.
• Also fail to provide the information regarding causes of
changes or the movements of finances between two-time
period or determine the various causes that lead changes in
financial position of a concern.

Fun Flow Statement Provide (Why it Prepare)

• Therefore, an additional statement should be prepared to show

the changes in assets, liabilities and owner’s equity
between dates of two balance sheets. Such a statement
referred to as the statement of changes in financial positions.
 MEANING OF FUND
The term fund has a variety of meaning such as cash fund, capital fund and
working capital fund.
1. Cash fund –In a narrow sense, fund means only cash. ‘Cash flow statement’
portrays net effect of the various business transactions on cash into account receipts
& disbursement of cash.
This concept of preparing fund flow statement is not accepted, as there are
many such transactions which do not affect cash but represent the flow of fund .
for example: purchase of furniture on credit does not affect cash but there is flow of
fund.
2. Capital fund –Here fund means all financial resources used in the business, whether
in the form of money, material, machine & others.
3. Net working capital -Net working capital means difference between current asset
and current liabilities .Funds generally refers to cash or cash equivalent or to
working capital.
 MEANING OF FLOW

 The term ‘flow’ refers to changes or transfer and therefore the ‘flow of funds’
means transfer of economic values from one asset to another, from one liability
to another, from one asset to liabilities or vice-versa or a combination of these. So
flow of fund refers to increase or decrease in net working capital.

 The increase or decrease in net working capital will take place only when one
account, out of two accounts to be affected in a transaction ,is a current account i.e.
current asset or current liabilities and the other account is non current account i.e.
fixed asset or long term liability or capital.

 When a change in non current account is followed by a change in another non

current account, it does not amount to flow of fund. It is because, in such case,
neither the working capital increase nor decrease.
• Funds :

Generally Funds means cash

Here Funds means Working capital (Current Assets – Current Liabilities)

• Flow of Funds:

The term flow means change and therefore the term flow of funds means
“changes in funds” or “changes in working capital”. In other words, any
increase or decrease in working capital means “flow of funds”.
 Current assets
Cash in hand and bank Fixed assets
Marketable investments Goodwill
Accounts receivables Land and building
Stock Plant and machinery
Prepaid exp. Long term investment

Fixed liabilities
Current liabilities Share capital
Bank overdraft Reserve and surplus
Outstanding expenses Debentures
Accounts payable Long term loans

Flow in fund Not flow in funds

FUNDS FLOW STATEMENT
Meaning:-
Funds flow statement is a statement, which shows the Sources and
Application of the funds during a particular time period. This statement
shows that during that period from where the funds have been procured and
where have been invested.

Steps in Preparation of funds flow statement:-

•Preparation of working capital statement that explains increase or decrease in
working capital.
•Preparation of funds from operation statement in which we find out operating
profit. (Adjusted profit and loss account)
•Preparation of funds flow statement that shows various sources and application
of fund .
1. Preparation of working capital statement that explains
increase or decrease in working capital.

Rules for preparation of Schedule of Changes in Working Capital:

• Current Assets Increase = Working Capital Increase

(Positive Relation)
• Current Assets decrease = Working Capital decrease

• Current Liabilities Increase = Working Capital decrease

(Negative Relation)
• Current Liabilities decrease = Working Capital Increase
Schedule Of Changes In Working Capital
 Fund Flow Statement

SOURCES AMT. APPLICATION AMT.

PAYMENT OF BANK
ISSUE OF CAPITAL LOAN

FUNDS FROM OPERATION INVESTMENTS

REDEMPTION OF
SALE OF FIXED ASSET PREF.SH
REDEMPTION OF
LONG TERM LOANS DEBENTURE
PURCHASE OF
BORROWINGS FIXED ASSETS

DECREASE IN W.C INCREASE IN W.C

TOTAL TOTAL
 Cash Flow Statement
Meaning:-
It is the statement depicting change in cash position from one period to another. It explains
the reasons for inflows or out flows of cash.

Steps in preparation
•Statement of cash from operation in this we will find out the cash profit of the company
•Preparation of cash flow statement in which it will explain various in flows and out flows
of cash.
•Here we will take the opening cash balance of the company and add various inflows to it
and deduct various outflows. Finally we will get the closing cash balance of the company.

Uses of Cash Flow Statement:

•Helps in efficient cash management
•Helps in Internal Financial Management
•Discloses the movement of cash
•Discloses success or failure of cash planning.
 Statement of Cash Flows

This statement reports cash inflows and

outflows based on the firm’s

• Operating activities
• Investing activities, and
• Financing activities
 Operating Activities :
Operating activities are the principal revenue-producing
activities of the enterprise and other activities that are not
investing or financing activities.

Operating Activities
Cash Inflow Cash Outflow
Cash Sales Cash Purchases
Cash received from debtors Payment to Creditors
Cash received from Commission Cash Operating Expenses
and Fees Payment of Wages
Royalty Payment of Income Tax
 Investing Activities :

Investing activities are the acquisition and disposal

of long-term assets and other investments not
included in cash equivalents.

Investing Activities
Cash Inflow Cash Outflow
Sales of fixed Assets Purchase of Fixed Assets
Sale of Investments Purchase of Investments
Interest Received
Dividends Received
 Financing Activities :
Financing activities are the activities that result in change
in the size and composition of the owners’ capital and
borrowing of the enterprise.

Financing Activities

Cash Inflow Cash Outflow

Issue of Shares in Cash
Issue of Debentures in Cash
Proceeds from Long-term Borrowings
Payment of Loans
Redemption of Preference Shares
Buy-back of Equity Shares
Payment of Dividend
Payment of Interest
Repayment of Finance/Lease Liability
 From the following information, prepare the Cash Flow Statement for the year
ended March 31, 2007 :

Particulars Rs.
Opening Cash Balance 10,000
Closing Cash Balance 12,000
Decrease in Debtors 5,000
Increase in Creditors 7,000
Sale of Fixed Assets 20,000
Redemption of Debentures 50,000

Net cash Profit for the year 20,000

 Cash Flow Statement for the year ended 31st March, 2007
Particulars Rs.
A. Cash Flow from Operating Activities
Net cash Profit for the year before tax 20,000
Add : Increase in Creditors 7,000
Decrease in Debtors(Cash receipts) 5,000 12,000
Net Cash provided by Operating Activities 32,000
B. Cash Flow from Investing Activities 20,000
Proceeds from Sale of Fixed Assets 20,000
Net Cash from Investing Activities
C. Cash Flow from Financing Activities
Redemption of Debentures (50,000)
Net Cash used in Financing Activities (50,000)
D. Net Increase in Cash (A +B+C) 2,000
Add : Cash at the beginning of the period 10,000
Cash at the end of the period 12,000
 Cash Flow Statement

Inflow Of Cash Outflow Of Cash

Opening Cash Balance 555.36 Advances 3180.69

Trade Payables 1119.70 Direct Taxes Paid 137.00

Deposits 1220.34 Payments For Extraordinary Items 2.80

Sale Of Fixed Assets 43.50 Purchase Of Fixed Assets 32.91

Sale Of Investments 42.85 Purchase Of Investments 529.80

Long Term Borrowings 2253.02 Interest Paid 12.52

Cash From Operations 449.36 Closing Cash Balance 593.61

Trade And Other Receivables 1194.80

5684.13 5684.13
 Funds Flow Statement vs. Cash Flow Statement

1. The fund flow statement is based on the concept of working capital, whereas the
cash flow statement is based on cash which is only one of the elements of working
capital.

2. The fund flow statement provides the details of funds movements, whereas cash
flow statement provides the details of cash movements.

3. Fund flow statement considers the movement of the funds as defined in terms of
net working capital, whereas the cash flow statement considers only the actual
movement of cash funds.

4. In fund flow statement, net increase or decrease in working capital is recorded

while in cash flow statement; individual item involving cash is taken into account.