Funds flow statements , meaning , merits

The Fund flow statement is a report on the movement of funds. It explains how fund is
raised and used during an accounting period. Fund flow statement is usually prepared for one
year on the basis of balance sheets and additional information. The schedule of changes in
working capital is prepared to find out the increase or decrease in working capital during the
year. Working capital refers to the capital required for the day- to- day operations of a business

1. Dr. V.SAKTHIDEVI , Assistant Professor of Commerce(SF) V.V.Vanniaperumal College for Women, Virudhunagar. FUNDS FLOW STATEMENT

2. Funds Flow Statement Funds Cash Flow changes of cash (inflow, Outflow)

3. Meaning The Fund flow statement is a report on the movement of funds. It explains how fund is raised and used during an accounting period.

4. Objectives of funds flow statement to show how he resources have been obtained and used. to indicate the results of current financial management. to have an assessment of the working capital position of the concern

5. Importance of fund flow statement:- Analysis of financial statement Balance sheet gives the still pictures of financial position as on the last date of the accounting year. 2. Rational dividend policy for the construction a projected fund flow statement for the forthcoming year, it is possible to have an idea about the future fund position. plan for optimum allocation of fund.

6. Importance of fund flow statement:- Guide to future course of action T he fund requirement of the firm can be made known in advance from the projected fund flow statement Judicious allocation of resources The projected fund flow statement enables the firm to make plan for optimum allocation of fund.

7. Limitations of fund flow statement 1.Not sufficiently explanatory : The fund flow statement is not sufficiently explanatory. 2. Not full proof : The income statement and balance sheet are susceptible to manipulation and influence not personal judgment exercised by management. 3. Not relevant : The fund flow analysis is not that much relevant for decision making as the cash flow analysis

8. Limitations of fund flow statement 4. Structural changes not disclosed : The fund flow statement does not indicate the structural changes in financial relationship in a firm. 5. Lack of originality : The fund flow statement is prepared by re-arranging the figures already provided in the balance sheet and income statement.

9. Preparation of funds flow statement Fund flow statement is usually prepared for one year on the basis of balance sheets and additional information.

10. Preparation of funds flow statement T here are three steps 1.Schedule of Changes in working capital. 2.Adjusted profit and loss account. 3. Funds flow statement.

11. 1.Schedule of Changes in working capital. The schedule of changes in working capital is prepared to find out the increase or decrease in working capital during the year. Working capital refers to the capital required for the day- to- day operations of a business

12. working capital is Current Assets minus Current liabilities Current Assets = cash, bank, stock, debtors, bills receivable, prepaid expenses, Accounts receivable, bad debts, sundry advances and short term investments.

13. working capital is Current Assets minus Current liabilities Current liabilities = bank loan, Creditors, bills payable, bank overdraft, Provision for doubtful debts, liability for expenses and Accounts payable

14. Formula for Schedule of Changes in Working Capital Increase in C.A - Increase in W.C Decrease in C.A - Decrease in W.C Increase in C. L. - Decrease in W.C Decrease in C.L. - Increase in W.C

15. 2. Adjusted Profit and Loss Account The adjusted profit and loss account is prepared to ascertain funds from operation. To ascertain the fund generated by operations the adjusted profit and loss account is prepared by taking into account only non operating income / gain and non operating expenses/ losses.

16. non operating income / gain and non operating expenses/ losses which do not involve any changes in working capital. Non operating income / gain - interest on investment and debentures , dividend received, profit on sale of fixed assets, refund of tax

17. non operating expenses/ losses – depreciation on fixed asset, provision for tax, proposed dividend, loss on sale of machinery, interim dividend, goodwill written off, Preliminary expenses, Discount on issue of debentures, Transfer to general reserve

18. 3. Funds Flow statement A funds flow statement is also known as the statement of sources and application of funds. It details how a company manages its funds. It can be broken down into two main components:

19. 3. Funds Flow statement Sources of funds – issue of shares and debentures, raising of long term loans, income from investments, sale of fixed assets. Application of funds – repayment of loans, purchase of fixed assets, payment of taxes and dividends, drawings, and redemption of debentures