Statement Of Schedule Of Changes In Working Capital This statement is prepared with the help of current assets and current liabilities relating to two different periods. An increase or decrease in respect of each of such items should be recorded to ascertain the net increase or decrease in the working capital. An increase in the value of current assets between two different periods indicates an increase in the working capital. It is an application of funds. An increase in the value of current liabilities between two different periods indicates decrease in the working capital. It is sources of funds.

1. MANAGEMENT ACCOUNTING
FUNDS FLOW STATEMENT
BY:
SMT.UMA MINAJIGI REUR
HEAD, DEPT. OF COMMERCE & MANAGEMENT
SMT. V G DEGREE COLLEGE FOR WOMEN, KALABURAGI

2. MANAGEMENT
ACCOUNTING
B.COM SIXTH SEMESTER
&
BBA FOURTH SEMESTER
6.3: PRINCIPLES OF MANAGEMENT ACCOUNTING

3. B.COM SIXTH SEMESTER
6.3: PRINCIPLES OF MANAGEMENT ACCOUNTING
Unit I: Management Accounting (08 Hours):
Definition and objectives of Management Accounting - Relationship between Cost, Financial and Managerial Accounting.
Unit II : Financial Statements (15 Hours):
Nature, uses and limitations. Analysis and interpretations – meaning, procedure, objectives, and importance. Comparative
statement, Common Size Statements and Trend Analysis - practical problems.
Unit III: Ratio Analysis (15 Hours):
Definition and meaning of Ratio Analysis, importance and limitations, Profitability Ratio – Gross profit Ratio, operating
Ratio, Overall profitability ratio – Earning per share. Turnover Ratios- Inventory Turnover Ratio, Debtors Turnover Ratio,
Debt collection period , Creditors Turnover Ratio, Debt payment period, Liquidity Ratio- current ratio, liquid ratio.
Financial positions and Leverage Ratios- Debt Equity Ratio, Proprietary Ratio - Problems thereon.
Unit IV: Analysis through Leverages (12 Hours):
Meaning- types of Leverages- operating – financial and combined leverages- problems thereon.
Unit V: Fund Flow Statement (15 Hours):
Meaning , uses and limitations – preparation of fund-flow statement. Cash Flow Statement: Meaning and preparation of
Cash flow statement- problems thereon.

4. Management Accounting
The term Management Accounting consists of two words: “Management” and “Accounting”.
Management is a technique of managing men. Its an art of getting things done by others.
Hence, for a successful execution of all activities, management has to to take various decisions
at every level. To take proper decisions, correct information is required. Such information is
provided by accounting.
Accounting is the process of identifying, measuring and communicating economic information
to management and outsiders. Such information’s help management to take decisions.
Management Accounting is the process of identification, measurement, accumulation, analysis,
preparation, interpretation, and communication of financial information in order to plan the
formulation of policies to plan and control the operations of the controlling of business
operations.

5. Definition:
J.S. Batty defines, “Management accounting is the term used
to describe the accounting methods, systems and techniques
which coupled with special knowledge and ability to assist
management in its task of maximising profit and minimising
losses.”
Management Accounting is a system for gathering data and
other financial information primarily for the internal needs of
management. It is designed to assist internal management in
the efficient formulation, execution and appraisal of business
plans.

6. Meaning of Funds Flow Statement:
It is a statement which discloses the analytical information about the different
sources of a fund and the application of the same in an accounting cycle.
It deals with the transactions which change either the amount of current assets and
current liabilities (in the form of decrease or increase in working capital) or fixed assets,
long-term loans including ownership fund.
It gives a clear picture about the movement of funds between the opening and closing
dates of the Balance Sheet. It is also called the Statement of Sources and Applications of
Funds, Movement of Funds Statement; Where Got-Where Gone Statement: Inflow and
Outflow of Fund Statement etc.
No doubt, Funds Flow Statement is an important indicator of financial analysis and
control. It is valuable and also helps to determine how the funds are financed. The
financial analyst can evaluate the future flows of a firm on the basis of past data.
Funds Flow Statement

7. Funds Flow Statement statement supplies an efficient method for
the financial manager in order to assess the
(a)growth of the firm,
(b)its resulting financial needs, and
(c)to determine the best way to finance those needs.
In particular, funds flow statements are very useful in planning
intermediate and long-term financing.

8. Objective of Preparing a Funds Flow Statement:
The main purpose of preparing a Funds Flow Statement is that it reveals
clearly the important items relating to sources and applications of funds of fixed
assets, long-term loans including capital. It also informs how far the assets
derived from normal activities of business are being utilised properly with
adequate consideration.
Secondly, it also reveals how much out of the total funds is being collected
by disposing of fixed assets, how much from issuing shares or debentures, how
much from long-term or short- term loans and how much from normal
operational activities of the business.
Thirdly, it also provides the information about the specific utilisation of
such funds, i.e. how much has been applied for acquiring fixed assets, how much
for repayment of long-term or short-term loans as well as for payment of tax and
dividend etc.
Lastly, it helps the management to prepare budgets and formulate the
policies that will be adopted for future operational activities.

9. Advantage of Funds Flow Statement:
1. It gives us information about how the funds are collected and how they are
used.
2. It helps in analysing the changes taking place in the working capital position
during a particular period.
3. It helps in measuring the efficiency in the utilization of funds.
4. It helps for making financial decisions.
5. It helps in estimating the future working capital requirements.
6. It helps in locating the idle funds.
7. It helps for better control over the financial activities of a firm by comparing
with the budgeted figures.

10. Limitations of Funds Flow Statement:
1. Profit ascertained is not correct, as it does not include non cash
items.
2. It is historical in nature and does not provide any basis for future.
3. It does not contain any original information, as the figures are
extracted from financial statements.
4. Management may manipulate the working capital position.

11. Sources of Funds:
Transactions which result in an increase in the amount of fund or
working capital are called sources of fund.
The following are the sources of funds:
1. Funds from operations, operating profit or trading profit.
2. Non operating incomes.
3. Refund of Income Tax (received).
4. Issue of Shares for cash or for any other current asset.
5. Issue of debentures for cash or for any other current asset.
6. Long term and medium term loans borrowed.
7. Long term or medium term deposits accepted.
8. Sale of long term investments for cash or for any other current asset.
9. Sale of fixed assets for cash or for any other current asset.

12. Application of Funds:
Transactions which result in decrease in fund are called uses or
applications of fund.
The following are the application of funds:
1. Funds lost in operations, operating loss or trading loss.
2. Non operating expenses.
3. Redemption of redeemable preference Shares for cash or for any other
current asset.
4. Redemption of debentures for cash or for any other current asset.
5. Redemption of Long term and medium term loans in cash or in any other
current asset.
6. Redemption of Long term or medium term deposits in cash or in any other
current asset.
7. Purchase of long term investments for cash or for any other current asset.
8. Purchase of fixed assets for cash or for any other current asset.
9. Drawings.

13. Preparation of Funds Flow Statement
1. Preparation of Statement of changes in working capital.
2. Preparation of Fixed Assets accounts.
3. Ascertain the funds from operations.
4. Finally preparation of Funds flow statement.

14. Statement Of Schedule Of Changes In Working Capital
This statement is prepared with the help of current assets and current liabilities
relating to two different periods.
An increase or decrease in respect of each of such items should be recorded to
ascertain the net increase or decrease in the working capital.
An increase in the value of current assets between two different periods indicates
an increase in the working capital. It is an application of funds.
An increase in the value of current liabilities between two different periods
indicates decrease in the working capital. It is sources of funds.

15. Particulars Previous
Year
Current
Year
Increase in
Working Capital
Decrease in
Working Capital
a) Current Assets
I Current Investments
Temporary Investment
Short Term Investment
II Inventories
Stock
III Trade Receivable
Sundry Debtors
Bills Receivable
IV Cash & Cash Equivalent
Cash Balance
Bank Balance
V Short Term Loans & Advances
Prepaid Expenses
VI Other Current Assets
Outstanding Incomes
Format:
Statement of schedule of changes in working capital

16. Particulars Previous
Year
Current
Year
Increase in
Working Capital
Decrease in
Working Capital
a) Current Liabilities
I Short Term Borrowings
Bank Overdraft
Short Term Loans & Advances
II Trade Payable
Sundry Creditors
Bills Payable
III Other Current Liabilities
Outstanding expenses
IV Short Term Provisions
Dividend Payable
Proposed dividends
Provisions for taxation
Working Capital (A-B)
Increase or Decrease in Working
Capital

17. Rules for preparing the Statement Of Schedule Of Changes In Working Capital
Increase in a current asset result in increase(+) in working capital.
Decrease in a current asset result in decrease(-) in working capital.
Increase in a current liability result in decrease(-) in working capital.
Decrease in a current liability result in increase(+) in working capital.

18. Illustration 1:
The following are the statement of Assets and Liabilities of a concern as on 31-12-2017 and 2018. Prepare statement of
schedule of changes in working capital.
Statement of Assets & Liabilities
Particulars 31-12-2017 31-12-2018
Amount Amount Amount Amount
I. Equity & Liabilities
1. Shareholders fund
Share Capital 6,00,000 6,00,000
Reserves & Surplus 6,92,000 12,92,000 8,64,000 14,64,000
2. Non-Current Liabilities
Long Term Borrowings 1,00,000 2,35,000
3. Current Liabilities
Trade Payables 6,39,000 9,41,000
Total 20,31,000 26,40,000
II. Assets
1. Non-Current Assets
a. Fixed Assets
Tangible Assets 11,13,000 13,98,000
2. Current Assets
Current Investments 87,000
Inventories 4,32,000 6,83,000
Trade receivables 3,46,000 5,28,000
Cash & Cash Equivalents 53,000 9,18,000 31,000 12,42,000

19. Notes to Accounts
Particulars 31-12-2017 31-12-2018
Amount Amount
Note 1: Share Capital
60,000 Equity Shares of Rs.10 each 6,00,000 6,00,000
Share Capital 6,00,000 8,00,000
Note 2: Reserves & Surplus
Profit & Loss 6,92,000 8,64,000
Reserves & Surplus 6,92,000 8,64,000
Note 3: Long Term Borrowings
Loan from Bank 1,00,000 2,35,000
Long Term Borrowings 1,00,000 2,35,000
Note 4: Trade Payable
Sundry Creditors 4,13,000 6,27,000
Bills Payable 2,26,000 3,14,000
Trade Payable 6,39,000 9,41,000

20. Particulars 31-12-2017 31-12-2018
Amount Amount
Note 5: Tangible Assets 11,13,000 13,98,000
Tangible Assets 11,13,000 13,98,000
Note 6: Current Investments 87,000
Note 7: Inventories
Stock 4,32,000 6,83,000
Inventories 4,32,000 6,83,000
Note 8: Trade Receivables
Sundry Debtors 3,46,000 5,28,000
Trade Receivables 3,46,000 5,28,000
Note 10: Cash & Cash Equivalents
Cash 53,000 31,000
Cash & Cash Equivalents 53,000 31,000

21. Solution:
Statement of schedule of changes in working capital
Particulars 2017 2018 Increase in
Working
Capital
Decrease in
Working
Capital
A. Current Assets
Current Investments
Inventories
Trade Receivables
Cash & Cash
Equivalents
B. Current Liabilities
Trade Payables
Sundry Creditors
Bills Payable
Working Capital (A-B)
Increase in Working
Capital
87,000
4,32,000
3,46,000
53,000
9,18,000
6,83,000
5,28,000
31,000
12,42,000
2,51,000
1,82,000
4,13,000
2,26,000
6,39,000
6,27,000
3,14,000
9,41,000
4,33,000
2,14,000
88,000
22,000
87,000
2,79,000
22,000
3,01,000
3,01,000
3,01,000 4,33,000 4,33,000
4,11,000
22,000
--

22. Particulars 2017 2018 Increase in
Working Capital
Decrease in Working
Capital
A. Current Assets
Current Investments 87,000 87,000
Inventories 4,32,000 6,83,000 2,51,000
Trade receivables 3,46,000 5,28,000 1,82,000
Cash & Cash Equivalents 53,000 31,000 22,000
9,18,000 12,42,000
B. Current Liabilities
Trade Payables
Sundry Creditors 4,13,000 6,27,000 2,14,000
Bills Payable 2,26,000 3,14,000 88,000
6,39,000 9,41,000
4,33,000 4,11,000
Working Capital (A-B) 2,79,000 3,01,000
Increase in Working Capital 22,000 22,000
3,01,000 3,01,000 4,33,000 4,33,000
Solution:
Statement of schedule of changes in working capital

23. THANK YOU