The document discusses fund flow statements. It defines fund flow as the change in working capital, which is the excess of current assets over current liabilities. A fund flow statement shows the sources and uses of funds over a period by outlining items that increased or decreased working capital. It provides important information for financial analysis and management decision making. The document outlines the key components and preparation of a fund flow statement, including the schedule of changes in working capital and treatment of various cash and non-cash items.

1. Fund Flow
Statement

2. Introduction
Fund flow comprises of two
words:
1.Fund
2.Flow

3. Fund means the excess of current assets over
current liabilities. Current assets include cash,
bank, debtors, stock and prepaid expenses.
Current liabilities include creditors, bills payable,
bank overdraft and outstanding expenses.
If the current asset is Rs 45000 and current
liability is 30000 then the fund will be Rs 15000.
Fund is also known as the working capital, hence
in accounting funds or working capital are same
thing.

4. Flow means change. When there is
change in the amount of funds, it is said
that there is a flow of funds. The change
may be positive or negative; funds may
increase or decrease .
Flow of funds refers to the movement of
funds into and out of the working capital
.

5. The fund flow statement is a statement
which shows the movement of funds and
is a report of the financial operation of
the business undertakings. It indicates
various means by which funds were
obtained during a particular period and
the ways in which these funds were
employed. In simple words it is a
statement of sources and application of
funds.

6. Definition:
According to the Institute of Chartered
Accountants of India:-
“A ‘Statement of changes in financial position’
summarizes for the period covered by it the
changes in the financial position including the
sources from which funds were obtained by
the enterprise and the specific uses to which
such funds were applied.”

7. The following transactions will bring the change in
the working capital –
• Current Assets and Non-Current Assets
• Current Assets and Non-Current Liabilities
• Current Liabilities and Non-Current Liabilities
• Current Liabilities and Non-Current Assets
In brief, it can be said that when one aspect is of
non-current category, and the other current
category, there will be flow in funds.

8. 1. Current Assets and Current Liabilities
2. Non-Current Assets and Non-Current
Liabilities
3. Non-Current Liabilities or Non-Current
Assets.

9. Funds flow statement can be prepared monthly but
usually it is prepared for one, two, three, four or
more years. The data for the preparation of this
statement are obtained form two balance sheets
supplemented by such other information from the
accounts as may be needed. It is customary for
accompany to use the figures of the balance sheet
for the latest year and those on the balance sheet as
at the beginning of the period for which this
statement is to be prepared.

10. 1. Schedule of Changes in Working Capital;
2. Fund Flow statement; Funds from
operation.

11. This statement is prepared from current
assets and current liabilities in order to
calculate the increase or decrease in
working capital and is prepared in the
Performa given as under.

12. Particulars Previous
Year
Figure
Current
Year
Figure
Changes in
current
assets and
liabilities
Incr-
ease
Decre-
ase
Current Assets :
Cash
Debtors
Stocks
Bill Receivables
Advance payment
Accrued income
Marketable Securities or Short-
term Investment

13. Previous
Year
Figure
Current
Year
Figure
Change in
current and
liabilities
Particulars
In.(+) Dec.(-
)
Current Liabilities:
Creditors
Bills Payable
Bank Overdraft
Outstanding Expenses
Short-term
Loan etc.
Increase or
Decrease in Working
Capital

14. The following rules may be applied to current assets
and current liabilities for preparing this statement:
1. An increase in current assets, increases working
capital
2. A decrease in current assets, decreases working
capital
3. An increase in current liabilities, decreases working
capital
4. A decrease in current liabilities, increases working
capital

15. This statement is usually prepared in “T”
form. Left-hand side is for sources of funds
and right-hand side for applications of
funds. The items of sources and
applications are given as follows:

16. 1. Funds from Operations
2. Issue of share capital
3. Issue of debentures
4. Raising of loans
5. Sale of Fixed asset
6. Non operating receipts
7. Decrease in working capital

17. 1. Purchase of Fixed assets.
2. Redemption of preference share or
debentures.
3. Payments of dividend.
4. Payment of Taxes.
5. Loss from operations.
Therefore, Sources less(-)Application=net
Increase/decrease in funds(working capital)

18. It can be calculated in two forms:
1. Approach I:In this approach the figure of
profit from profit and loss account is taken
and certain adjustments are done for non
cash and non operating items.
2. Approach 2: In this approach Fund from
operation is compiled by redrafting income
statement

19. Approach I
Particulars
Net Profit for Current Year
Add : Non fund items
Depreciation
Goodwill, Patents
Preliminary Expenses Written off
LESS : Non-fund Items and Non-trading
Income ,already Credited to P & L A/c.
Dividend Received
Profit on sale
Funds from operations
Amount
Rs.
Amount
Rs.

20. Approach 2
To Depreciation
To Goodwill Written off
To preliminary Expenses written
off
To Transfer to sinking fund
To Loss on sale of fixed Assets
To Closing Balance of P&L
Appropriation A/c
By opening Balance of P&L
Appropriation A/c
By Dividend Received
By Over provisions Written
Back
By Funds from operations
(Balancing Figure)

21. While preparing funds flow statement,
the following rules must be remembered
1. An increase in a fixed assets indicates an application
of funds
2. A decrease in a fixed assets indicates a source of funds
3. An increase in a fixed liability indicates a source of
funds
4. A decrease in fixed liability indicates an application of
funds
5. An increase in share capital indicates a source of funds
6. A decrease in share capital indicates an application of
funds

22. 1. Helpful in Finding the answers to some Important
Financial Data:
a) Where profits have been used or utilized?
b) How much funds have been generated from the business
operation?
c) Why dividends were not larger and how it was distributed
though current earnings where less?
d) How has working capital Increased?
e) How has company financed its assets and fixed assets?
f) How is that the current assets are more at the end of the
year compared to those in the beginning of the year even
though there was a loss?

23. 2. Helpful in financial analysis
3. It provides more reliable figures of profit and loss of
the business
4. It enables to know whether funds have been
properly used
5. Helpful in proper management of working capital
6. Helps in proper preparation of budget for next
period
7. Helps a firm in borrowing operations
8. Helps in determining dividend policy
9. Helps shareholder to know about the financial
policies of firm
10. Helps in planning

24. Financial Statement
• It reflects financial position
through balance sheet and
profitability through profit
and loss account.
• It is based on recorded
facts.
• It is prepared periodically,
generally for accounting
period.
• The
Fund Flow statement
• It shows the inflow and out
flow of funds.
• It is based on wider concept
of funds i.e. working capital
• It is used for long range
planning
• Opening and closing
balance of cash are not
shown in Fund flow
statement

25. 1. Funds flow statement has to be used along with balance
sheet and profit and loss account, it cannot be used alone.
2. It does not reveal the cash position of the company, and
that is why company has to prepare cash flow statement in
addition to funds flow statement.
3. Funds flow statement merely rearranges the data which is
there in the books of account and therefore it lacks
originality. In simple words it presents the data in the
financial statements in systematic way and therefore many
companies tend to avoid preparing funds flow statements.
4. Funds flow statement is basically historic in nature, that is it
indicates what happened in the past and it does not
communicate anything about the future, only estimates can
be made based on the past data and therefore it cannot be
used the management for taking decision related to future.