diference betweencash flow and fund flow ppt

1. s r tripathi (mba)
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New
Pers

2. Meaning :Cash flow statement is a statement which
describes the inflows (sources) and outflows (uses ) of cash and
cash equivalents in an enterprise during a specified period of
time. Such a statement enumerates net effects of various
business transactions on cash and it equivalents and takes into
account receipts and disbursements of cash.
Objectives:
1. To show the causes of changes in cash balance between two
balance sheets dates.
2. To indicate the factors contributing to the reduction of cash
balance in spite of increase in profits and vice versa.
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4. DIFFERENCE BETWEEN FUNDS
FLOW STATEMENT AND CASH FLOW
STATEMENT
S no Funds flow statement Cash flow statement
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It helps to measure the causes of
working capital.
It is prepared on the basis of fund
and financial resources.
It helps to the management for
immediate and long term financial
planning.
Statement of changes in working
capital is required for preparation
of fund flow statement.
It focuses on the causes for the
movement of cash during a
particular period.
It is based on cash basis of
accounting.
It guides the management for short
term financial planning.
In this there is no such statement is
required.

5. LIMITATIONS CASH FLOW
STATEMENT
 Cash flow statement has limited scope as it
compares with fund flow statement. Because it
discloses inflows and outflows of cash alone.
 Cash flow statement cannot provide a
comprehensive picture of a financial position
because non cash items of expenses and incomes
are excluded.
 The balances as disclosed by Cash flow statement
may not be treated as actual liquid position of a
concern since it cannot be easily influenced by
postponing purchases and other payments.

6. OBJECTIVES OF FUND FLOW
STATEMENT
To find the position of working capital.
To know the changes in working capital.
Knowledge of fund from operation.
Knowledge of sources of funds.
Knowledge of application of funds.
.

7. MEANING OF FUND
FUND:-
It refers to all financial
resources of the enterprise.
According to concept all assets –
both fixed and current would
constitute fund. In popular sense it
is used to refer to working capital .
In narrow sense it is used to refer
to cash and bank.

8. MEANING OF FLOW OF
FUND
FLOW OF FUND:-
It refers to the
change in the financial position of a
business caused by inflow and
outflow of resources owing to
receipts and payment. If
transaction result in increase in
fund it is known as source of fund
and it result in decrease in fund it
is known as application of fund.

9. CONCEPT OF FUND
FLOW STATEMENT
. A fund flow statement is a
technical device design to
analyze, the changes in the
financial condition of business
between two dates. It shows
SOURCES AND APPLICATION
OF FUND.

10. FUND FLOW STATEMENT
SOURCES OF FUND APPLICATION
OF FUND
Fund from operation loss from operation
Sale of assets purchase of assets
Issue of share and capital redemption of share
and redemption
Non- trading receipts non- trading payment
Decrease in working increase in working
capital capital

11. FUND FLOW STATEMENT
It is a statement of sources and
application of fund designed to
analyze the change in the
financial condition of a business
enterprise between two dates.
ROY A. FOULKE

12. IMPORTANCE OF FUND
FLOW STATEMENT
It helps in analyze the financial
condition.
It suggests to improve working
capital.
It helps in planning for future.
It helps to compare between two
dates.
It helps to know the changes in
working capital.

13. LIMITATION OF FUND
FLOW STATEMENT
It is prepared based on historical
information.
It does not consider all
information.
Fund flow statement is not more
reliable.
It is prepared on occasionally.

14. MEANING OF FUND FROM
OPERATION
 Funds from operations are internal sources of
funds .It refers to those funds which are
generated in the business as a result of carrying
out the operations during the year. Funds from
operations are computed by adjusting the Net
profit figure from non-fund expenses.

15. CALCULATION OF FUND FROM
OPERATION
Funds from operation of the business are the
most important major source of funds . But it
must be remembered that funds from
operation do not necessarily mean the profits
as shown by the profit and loss account of a
firm because there are many non-fund or
non-operating items which may have been
either debited or credited to profit and loss
account .The examples of such items on the
debit side of profit and loss account are; such
as goodwill Preliminary Expenses and
discount of issue of shares or Debentures
written of f.

16. THERE ARE TWO METHODS OF
CALCULATING THE FUNDS FROM
OPERATIONS
1. By preparing again profit and loss account showing
income only relating to the business and expenses
which are paid and relating to the business. The
residual figure will be funds from operation . Non cash
items like depreciation and non-operating expenses like
trade marks , preliminary expenses patents, goodwill,
etc.
2. By starting with the net profit already calculated , add
non –operating expenses (i.e. not relating to the
business ), such as trade marks ,preliminary expenses,
patents , goodwill loss on sale of assets ,provision or
reserve for any asset or expenses , proposed dividends
non-cash item as depreciation and deduct those income
which are not relating to business (i.e., non-operating
incomes) such as profit on the sale of any fixed asset,
dividend received ,refund of tax etc.

17. ACCOUNTRs
RS
To Depreciation and Depletion
_ ---
To Amortization of Fictitious and
Intangible assets:
_
Goodwill
_
patent rights
Trade marks
Preliminary Exp.
Discount on issue of shares
To Non operating Exp.
Loss on sale of fixed assets
Dividends (including interim
dividend)
Proposed Dividend(if not taken
as current liability)
Provision for taxation (if not taken as
Rs
By opening balance of
profit and loss a/c
---
By Dividend Received
By Refund of income tax
By Profit on sale of any fixed asset
By Funds from operations( balancing
figure ,if any)

18. CALCULATION OF FUND FROM
OPERATIONS
Closing balance of profit and loss a/c or Retained earnings (as given in the
balance sheet )
Add: Non-fund and non operating items which have been already
debited to profit and loss A/c:
1. Depreciation and depletion
2. Amortization of fictitious asset and fictitious asset such as:-
(1) Goodwill
(2) patent Rights
(3) Trade Marks
(4) Preliminary Expenses
(5) Discount on Issue of shares and Debentures
3.Loss on sale of fixed Asset(non-current Asset) such as:
(1) Loss on sale of Land and Building
(2) Loss on sale of Machinery
(3) Loss on sale of Furniture
(4) Loss on sale of Long term Investments etc.
4.Dividend including Interim Dividend
5. proposed dividend (if not taken as current liability)
6. provision for Taxation(if not taken as current liability)
7. Any other non-fund/non operating items which have been debited to profit
and Loss A/C
Total(A)

19.  Less :Non-fund or non-operating items which have already been
credited to profit and loss a/c:
1. Profit or gain from the sale of fixed assets such as:
(1)profit on sale of land and building
(2)profit on sale of plant and machinery
(3)profit on sale of Furniture
(4)profit on sale of long term investments
2. Dividend received
3. Refund of income tax
4. Excess Provision transfer to P/L A/C
5. Any other non-operating item which has been credited to Profit and
loss A/C
6. Opening balance of profit and loss A/C or retained Earning
(as given in balance sheet)
Total(B)
OPERATIONS

20. Liabilities 2008 2009 Assets 2008 2009
Capital 40000 50000 Buildings 25000 40000
P/L A/c 8000 12000 Machinery 15000 25000
Reserve
Fund
5000 8000 Goodwill 10000 5000
Bank loan 5000 4000 Cash in Hand 2000 6000
Creditors 2000 1000 Debtors 4000 3000
B/P 4000 6000 B/R 4000 1000
Stock 4000 1000
64000 81000 64000 81000
EXAMPLE:- BALANCE SHEET AS ON
Additional Information:
1-Dividend Paid: 20000
2-Depreciation on Machinery: 25000
3-Depreciation on Buildings: 4000