Cash flow and Fund Flow Statement in Management Accounting.

Every company prepares its balance sheet at the end of its accounting year. It is a statement of assets and liabilities of the company, as on a particular date. It reveals the financial position of the company. It does not present a detailed analysis. The balance sheet fails to account for the periodic increase or decrease in the working capital of an enterprise. Cash plays an important role in the economic life of a business. A firm receives cash from sales, debtors and other sources like sale of assets, investments etc. It needs cash to make payments to its suppliers, to incur day-to-day expenses and to pay salaries, wages, rent, interest, dividends etc. Thus, in a firm, there is constant inflow and outflow of cash

1. Cash Flow Statement And Fund Flow Statement

2. A cash flow statement summarizes the amount of cash and cash equivalents entering and leaving a company.  The CFS highlights a company's cash management, including how well it generates cash.  This financial statement complements the balance sheet and the income statement.  Main components of the CFS are cash from three areas cash flow statement

3. Meaning: The Flow of Fund refers to the movement of funds (money resources) into and out of an enterprise during a specific period. Definition of Fund: In this context, the term ‘Fund’ specifically means Working Capital , i.e., the difference between Current Assets and Current Liabilities . Meaning of Flow: The word ‘Flow’ represents changes or movement — an increase or decrease — in the level of Working Capital. Overall Interpretation: Hence, the Flow of Fund shows the changes in Working Capital resulting from various business transactions during a period. Increase in Working Capital → Application (use) of funds Decrease in Working Capital → Source (inflow) of funds. The following is the “Principle” for prepartion of working capital statement Increase in current Assets – Increases working capital Decrease in current assets – Decreases working capital Increase in current liability – Decreases working capital Decrease in current liability – Increases working capital Fund flow statement

4. Particulars Year (Rs) Year (Rs) Changes in working capital       Increase Decrease Current assets;         Cash Xxx Xxx Xxx   Bank balance Xxx Xxx Xxx   Stock Xxx Xxx -   Sundry debtors Xxx Xxx Xxx   Trading invetment Xxx Xxx -   Prepaid expenses Xxx Xxx Xxx   Total (A) xxx xxx     Current liabilities:         Creditors Xxx Xxx - Xxx Bills payable Xxx Xxx Xxx - Outstanding expenses Xxx Xxx - xxx Short term loan Xxx Xxx Xxx - Bank overdraft Xxx Xxx - xxx Total (B) Xxx Xxx     Working capital (A- B) Xxx Xxx     Net increase/decrease in working capital xxx     Xxx   xxx Xxx xxx xxx SCH OF CHANGES IN WORKING CAPITAL