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Why we prepare fund flow statement  The balance sheet and income statement are the traditional

Why we prepare fund flow

statement

The balance sheet and income statement are the traditional basic financial statement of business enterprises. The serious limitation

of these statement is that they don't provide

information regarding the changes in the

firm‟s financial position during a particular

period of time. They fail to answer the

following questions:

Contd ..  What funds are available during accounting year and for what purpose these funds

Contd ..

  • What funds are available during accounting year and for what purpose these funds were utilized.

  • How long term sources been adequate to finance fixed assets purchase.

  • Does the firm posses adequate working capital

  • How much funds are been generated from operations.

  • Why did firm not pay dividend inspite of adequate profit?

 FUNDS : WORKING CAPITAL  FLOW OF FUNDS: THE TERM FLOW MEANS CHANGE AND THEREFORE
 FUNDS : WORKING CAPITAL  FLOW OF FUNDS: THE TERM FLOW MEANS CHANGE AND THEREFORE
  • FUNDS : WORKING CAPITAL

  • 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”.

FUNDS FLOW STATEMENT Funds flow statements is dealt by Accounting Standard 7 . . Meaning :-

FUNDS FLOW STATEMENT

Funds flow statements is dealt by Accounting Standard 7 .

.

Meaning :- It explains changes in funds or changes in working capital

. It explains the working capital position of the company which gives

an idea to the top management about the liquidity position of the

company.

Working capital:- It is the difference between current assets and

current liabilities.

Steps in preparation of funds flow statement:-

1. Preparation of working capital statement that explains increase or

decrease in working capital.

2. preparation of funds from operation statement in which we find

out operating profit.

3. Preparation of funds flow statement that shows various sources

and application of fund .

Current assets Cash in hand and bank Fixed assets Marketable investments Accounts receivables Stock Prepaid exp.
Current assets
Cash in hand and bank
Fixed assets
Marketable investments
Accounts receivables
Stock
Prepaid exp.
Goodwill
Land and building
Plant and machinery
Long term investment
Fixed liabilities
Current liabilities
Bank overdraft
Outstanding expenses
Accounts payable
Share capital
Reserve and surplus
Debentures
Long term loans

Flow in fund

Not flow in funds

USES OF FUNDS FLOW  WHY THE LIQUID POSITION OF THE BUSINESS BECOMING MORE AND MORE

USES OF FUNDS FLOW

  • WHY THE LIQUID POSITION OF THE BUSINESS BECOMING MORE AND MORE UNBALANCED IN SPITE OF COMPANY IS MAKING MORE AND MORE PROFITS.

  • WHERE HAVE THE PROFIT GONE

  • WHAT WILL BE THE SOURCES FOR DIVIDEND IF COMPANY IS NOT EARNING SUFFICIENT PROFIT

  • WHAT ARE THE SOURCES OF REPAYMENT OF THE LOAN TAKEN

  • HOW MUCH FUNDS GENERATION THROUGH NORMAL BUSINESS OPERATION.



IN WHAT WAY THE MANAGEMENT HAS UTILIZED

THE FUNDS IN THE PAST AND WHAT ARE GOING TO BE LIKELY USES OF FUNDS ?

Funds flow Analysis funds.
Funds flow Analysis
funds.

This statement is based on the „working Capital‟ concept of

It measures the inflows and outflows of working capital resulting from different transactions.

Funds flow statement measures and presents in an analytical

manner the summarized version of the numerous flows of funds

for a specific period.

„Funds Flow‟ is the change in „Working Capital‟

Format of Schedule of changes in Net Working Capital Beginning year End Year Increase in C.A.
Format of Schedule of changes in Net
Working Capital
Beginning year
End Year
Increase in C.A.
&Decrease in C.L.
Decrease in C.A.
&Increase in C.L.
A.
Current Assets
Cash
Debtors
Bills Receivable
Stock
Prepaid Expenses
Total Current Assets
B Current Liabilities
Short term loans
Creditors
Bank overdraft
Bills payable
Outstanding expenses
Total C.L.
WORKING CAPITAL
(A-B)
Increase/Decrease in W.C.
FUND FLOW STATEMENT SOURCES OF FUND AMOUNT USES OF FUND AMOUNT Fund from operation Loss from

FUND FLOW STATEMENT

SOURCES OF FUND

AMOUNT

USES OF FUND

AMOUNT

Fund from operation

 

Loss from operation

 

Issue of shares Issue of debentures

Redemption of shares Redemption of

Sale of fixed assets/

debentures

investment Non trading receipts

Repayment of long term loans

Long term loans

Purchase of Fixed Assets/ Investment

Decrease in working capital

Payment of dividend and

taxes

Increase in working capital

   
FUND FROM OPERATION  The profit made by the firm through normal operation is a major

FUND FROM OPERATION

The profit made by the firm through normal operation is a major source of funds. The amount of sales as shown in P&L A/c is a

source of fund by way of increase in cash,

debtors, and B/R.

Profit & Loss Adjustment A/c Particulars Amount Particulars Amount To Depreciation To Loss on sale of

Profit & Loss Adjustment A/c

Particulars

Amount

Particulars

Amount

To Depreciation

To Loss on sale of fixed

assets

To Under writing commission

To Discount on issue of

shares and debentures

To Preliminary Expenses written off To Goodwill written off

To Patent or trademark To Deferred revenue expenses To Balance c/d

By Balance b/d

By Profit or gain on fixed

assets By Dividend received

By Interest received on investment

By Profit on revaluation of

assets

FUND FROM OPERATION

NUMERICAL  From the following information prepare schedule of changes in net working capital for the

NUMERICAL

  • From the following information prepare schedule of changes in net working capital for the year ended on 31 st dec,2008

Particulars

1-1-2008

31-12-2008

Cash

10,000

12,000

Bank

40,000

30,000

Debtors

25,000

45,000

Bills Receivable

5,000

2,000

Stock

22,000

22,000

Creditors

10,000

8,000

Outstanding Expenses

2,000

2,500

NUMERICAL  From the following information prepare schedule of changes in net working capital for the

NUMERICAL

  • From the following information prepare schedule of changes in net working capital for the year ended on 31 st March, 2009

Particulars

31-03-2008

31-03-2009

Bank overdraft

____

5,000

Creditors

3,10,000

2,90,000

Bank Loan

1,00,000

75,000

Cash

30,000

10,000

Debtors

2,10,000

1,80,000

Stock

2,00,000

2,25,000

Proposed Dividend

45,000

60,000

NUMERICAL  From the following information of M/s XYZ Ltd. Prepare a Schedule of Changes in

NUMERICAL

  • From the following information of M/s XYZ Ltd. Prepare a Schedule of Changes in Net Working Capital and Fund Flow Statement

LIABILITIES

2008

2009

ASSETS

2008

2009

Share Capital

30,000

36,000

Plant

6,000

5,000

Reserves &

14,000

19,000

Machinery

25,000

20,000

Surplus Debentures

5,000

--

Stock

12,000

18,000

11,000

9,000

Debtors

15,000

19,000

Creditors

Cash

2,000

3,000

Unclaimed Dividends

---

1,000

______

______

______

______

60,000

65,000

60,000

65,000

Cash Flow Statement MEANING:- It is the statement depicting change in cash possession from one period

Cash Flow Statement

MEANING:- It is the statement depicting change in cash

possession from one period to another. It explains the reasons for

inflows or out flows of cash.

Steps in prepration

Statement of cash from operation in this we will find out the

cash profit of the company

Preparation of cash flow statement in which we 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.

Cash Flow Analysis
Cash Flow Analysis

Cash flow includes cash inflows and outflows cash receipts and cash payments during a period.

A cash flow statement is a statement which portrays the changes in cash position between two accounting periods.

It helps in taking short term financial decisions and also in the preparation of cash budget for the next year.

funds Flow ? not has non-cash items.
funds Flow ?
not has non-cash items.

How Cash Flow Differ From

Unlike funds flow Cash Flow does

It comprises only those entries in which cash has come in or gone out.

Statement Of Cash From Operations Net Profit Before Tax 330.22 (Add) Non-cash Expenses Depreciation Interest Payable
Statement Of Cash From Operations
Net Profit Before Tax
330.22
(Add) Non-cash Expenses
Depreciation
Interest Payable
Amortizations
Provisions
35.15
12.52
33.86
80.80
(Less) Non-cash Incomes
Profit on sold Assets
43.19
Cash From Operations
449.36
Cash Flow Statement Inflow Of Cash Outflow Of Cash Opening Cash Balance 555.36 Advances 3180.69 Trade
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