managementaccountingunitiii-230422135735-edd35f1d.ppt

FUND FLOW & cash flow

2. WHATDOYOUMEANBYTHETERMFUNDS?
Fundsmeansallfinancialresourcesusedinthe
business,whetherintheformofmen,material,
machinery,moneyandothers.Itreferstothemoney
valuesinwhateverformitmayexist.Thefundsflow
statementisareportonthemovementoffunds.It
explainshowworkingcapitalisraisedandusedduring
anaccountingperiod.

3. WHAT DOYOUMEAN BYFUND FLOW
STATEMENT?
Thefundsflowstatementisareportonthe
movementoffundsorworkingcapital.Itexplainshow
workingcapitalisraisedandusedduringan
accountingperiod.

4. STATETHEOBJECTIVESOFFUNDFLOWSTATEMENT.
Themainobjectivesoffundflowstatementare:
Toshowhowtheresourceshavebeenobtainedandused.
Toindicatetheresultsofcurrentfinancialmanagement.
Tothrowlightuponthemostimportantchangesthathave
takenplaceduringaspecificperiod.
Toshowhowthegeneralexpansionofthebusinesshas
beenfinanced.
Toindicatetherelationshipbetweenprofitsfrom
operations,distributionofdividendandraisingofnew
capitalortermloans.
Tohaveanassessmentoftheworkingcapitalpositionof
theconcern.

5. Principle for preparation of working capital statement.
IncreaseinCurrentAsset -IncreaseinWorking
Capital
DecreaseinCurrentAsset-DecreaseinWorking
Capital
IncreaseinCurrentliabilities-DecreaseinWorking
Capital
DecreaseinCurrentliabilities-IncreaseinWorking
Capital
Increaseinworkingcapitalwillappearonthe
‘application’sideoffundsflowstatement.
Decreaseinworkingcapitalwillappearonthe
‘source’sideofthefundsflowstatement.

6. WHATISMEANTBYWORKINGCAPITAL?
Workingcapitalreferstothecapitalrequiredfor
theday-to-dayoperationsofabusiness.Itistheexcess
ofcurrentassetsovercurrentliabilities.Adequate
workingcapitalisnecessaryforthesuccessfulrunning
ofanyorganization.Themanagementmustforecast
theworkingcapitalrequirementinadvanceand
arrangeforfinancingthem.

7. WHATDOYOUMEANBYCASHFLOWSTATEMENT?
Cashflowstatementreportstheinflowsandoutflowsof
cashanditsequivalentsofanorganizationduringaparticular
period.Itreportsthecashreceiptsandcashpaymentsclassified
accordingtothefirmsmajoractivities-operating,investingand
financing.Itshowsthenetcashinflowandnetcashoutflowfor
eachactivityandfortheoverallbusinessofthefirm.Itreports
fromwherecashhascomeandhowithasbeenutilized.It
explainsthecausesforthechangeinthecashbalanceby
reconcilingtheopeningbalanceoftheperiodwiththeclosing
balance.

8. STATETHEOBJECTIVESOFCASHFLOW
STATEMENT.
Itprovidesinformationaboutthecashflowofan
enterprisetousersoffinancialstatementwhich
canbeusedasabasistoassesstheabilityofthe
enterprisetogeneratecashandcashequivalents
andtheneedsoftheenterprisetoutilizethosecash
flows.
Toenabletheusersoffinancialstatementto
evaluatethe‘timingandcertainty’ofthe
generationofcashflows.
Toclassifythecashflowsonthebasisof
operating,investingandfinancingactivities.