1. FUNDS FLOW STATEMENT
FUND FLOW STATEMENT 1
Mr. LIBEESH P C
Assistant Professor in Commerce
B Com, Bed, M Com, UGC NET
2. Introduction
• There is no comparison of profit with another year in the profit and
loss account.
• Balance sheet explain a static information about assets and liabilities
for a particular period of time.
• The improvement of profit and the financial position may not be
known through the P&L account and Balance sheet.
• Not possible to measure the change of fund invested.
FUND FLOW STATEMENT 2
3. Introduction (Cont.)
• The statement prepared to show changes in assets, liabilities and owners
equity of a business are called statement of changes in financial position.
• These include Funds flow statement and cash flow statement.
• Statement of changes in financial position prepared on working capital
basis is called funds flow statement and
• On cash basis is called cash flow statement.
FUND FLOW STATEMENT 3
4. Meaning of fund
Investments in long term assets as well as the receipts concerned with
long period of time.
According to IAS, fund refers to cash or cash equivalents; or to working
capital (excess of current assets over current liabilities)
So the fund can be defined in two concepts
1. Cash concept (narrow sense of funds)
2. Working capital concept (broad sense of fund)
FUND FLOW STATEMENT 4
5. Cash concept (narrow sense of funds)
Fund means only cash.
It is concerned with inflow and outflow of cash only.
Movement of fund means movement of cash only.
So the statement prepared according to this concept, to measure the
movement of fund is called statement of cash flow
FUND FLOW STATEMENT 5
6. Working capital concept (broad sense of fund)
Fund means cash and cash equivalents.
Cash equivalents are stock, debtors, bills receivables, outstanding income
and expenses paid in advance.
This concept state that fund means working capital.
Working capital may be gross working capital and net working capital
GWC means investments of funds in current assets.
NWC is the difference between current assets and current liabilities.
FUND FLOW STATEMENT 6
7. Meaning of Fund Flow
• Movement of fund from one period to another.
• The term flow means movement and includes both inflow and
outflow of fund.
• Transaction results in increase of funds are called inflow of funds and
• Transaction which decreases funds are called outflow of funds.
• A transaction which increases the working capital is called inflow of
funds and which decreases working capital is called outflow of funds.
FUND FLOW STATEMENT 7
8. Examples of inflow and outflow
Inflow of fund
• Sale of fixed assets
• Raising of fixed capital
Outflow of fund
• Purchase of fixed assets.
• Decreasing of fixed capital (redemption)
FUND FLOW STATEMENT 8
9. • The flow of fund occurs when a transaction changes on the one hand
a non current account and on the other hand a current account and
vice versa.
• A change in non current account followed by a change in another
• Non current account or a change in a current account followed by a
change in another current account will not result in the flow of fund.
FUND FLOW STATEMENT 9
10. Change in flow of fund
• Transaction between Current assets and fixed assets.
• Transaction between current liabilities and fixed liabilities.
• Transaction between current assets and fixed liabilities.
• Transaction between current liabilities and fixed assets.
FUND FLOW STATEMENT 10
11. Flow of fund
Current Assets
Fixed liabilities
Current Liabilities
Fixed Assets
Flowoffunds
Flowoffunds
No Flow of funds
No Flow of funds
FUND FLOW STATEMENT 11
12. Transaction which result in movement of fund
Transaction between Current assets and fixed assets
Sale of machinery
Purchase of furniture
Transaction between current assets and fixed liabilities
Issue of equity share capital
Borrowing loans from bank
Redemption of debentures
Repayment of loans.
FUND FLOW STATEMENT 12
13. Transaction which won’t result in movement of fund
Transaction between Current assets and current liabilities
Receipt from sundry creditors
Honoring of bills payable.
Transaction between Fixed assets and fixed liabilities
Purchase of machinery by paying equity.
Redemption of debentures through a machinery.
Transaction within current items and with in fixed items
Receipt from debtors
Bills accepted for sundry creditors.
Exchange of a machine with furniture for other company.
Redemption of debentures through equity shares.
FUND FLOW STATEMENT 13
14. Difference between funds flow statement & balance sheet
Fund flow statement Balance sheet
A statement of changes in Financial position
and hence is dynamic in nature.
A statement of financial position on a
particular date and is static in nature.
Shows the sources and uses of funds in a
particular period of time.
Depicts the assets and liabilities at a
particular point of time.
A tool of management for financial analysis
and helps in decision making.
No much help to management in making
decisions.
Schedule of changes in working capital has
to be prepared before preparing FFS.
No schedule of changes in working capital is
required. Rather profit and loss account is
prepared.
FUND FLOW STATEMENT 14
15. Difference between funds flow statement and income statement
Fund flow statement Income statement
Highlights the changes in financial
position means inflow and outflow of
funds
It does not reveal the flow of fund but
depicts the items of expenses and
income.
It is a complementary income statement.
Income statement helps in the
preparation of FFS
Income statement is not prepared from
the FFS
Both capital and revenue items are
considered
Only revenue items are considered.
There is no prescribed format for the
preparation of FFS
Prepared in a prescribed format.
FUND FLOW STATEMENT 15
16. 1. ……………….is a statement which lists all the sources of funds and
applications of funds taken place in a business during a particular period
(a) Fund flow statement
(b) Cash flow statement
(c) any of these
(d) none of these
Ans: Fund flow statement
FUND FLOW STATEMENT 16
17. 2. The overall net increase or decrease in working capital is found out
by preparing…………………
(a) Fund flow statement
(b) Cash flow statement
(c) Statement showing changes in working capital
(d) None of these
Ans: Statement showing changes in working capital
FUND FLOW STATEMENT 17
18. 3. Which one of the following is a source of fund ?
(a) Issue of shares in consideration of machinery purchased
(b) Issue of bonus shares
(c) Issue of right shares
(d) Issue of shares for cash
Ans: Issue of shares for cash
FUND FLOW STATEMENT 18
19. 4. Which among the following is a sources of fund ?
(a) Sale proceeds of fixed assets
(b) Sale proceeds of long term investments
(c) Non operating incomes
(d) All of these
Ans: All of these
FUND FLOW STATEMENT 19
20. 5. Which among the following is an application of fund ?
(a) Purchase of long term investments
(b) Redemption of preference shares
(c) Redemption of debentures
(d) All of these
Ans: All of these
THE END
FUND FLOW STATEMENT 20
Mr. LIBEESH P C
Assistant Professor in Commerce
B Com, Bed, M Com, UGC NET
