Fund flow statement also called as statement of “source and application of funds” which provides insight into the movement of funds and useful to understand the changes in the structure of assets, liabilities and equity capital And to analyze the flow of funds.If you like this article then please like us on Facebook so that you can get our updates in future ……….and subscribe to our mailing list ” freely “
Meaning Fund Flow Statement
- Fund means Working capital – difference between current assets and current liabilities
- Funds flow statement analyses the reasons for change in financial position between two balance sheets
- Funds flow statement shows the inflows and outflows of funds – Sources and Application of funds during a particular period
Objective of Fund Flow StatementFunds Flow Statement is a statement prepared to analyse the reasons for changes in the Financial Position of a Company between current year and previous financial year. It displays the inflow and outflow of funds.
How to prepare funds flow statements :
A.Working capital - changes :For preparing the Funds Flow Statement, the first and foremost thing to be done is to prepare the Statement of Changes in Working Capital. There may be several reasons for changes in the Working Capital Position of any business concern. Some of the reasons are as follows. 1.Repayment of a Long Term loans or Redemption of Preference Shares without raising other long term resource.
B.Calculation of funds from operations:
- Amortization of Intangibles and deferred charges
- Amortization of loss on sale of investments or fixed assets
- Losses from other non-operating items
- Current year tax provision
- Transfer to reserve
- Proposed dividend
- Profit on sale of investment or fixed assets
- Any subsidy credited to P & L A/c
- Any written back reserve and provision
A. Sources of funds :Funds can be procured from different sources available in the market Some of these are
- Decline in working capital assets
- Funds from Operations
- Sale of Investments and other Fixed Assets
- Issue of Shares and Debentures for Cash.
- Long Term Loans.
B. Applicatioon of funds :
- Increase in Working Capital.
- Redemption of Debentures, Preference Shares and Repayment of Loan.
- Payment of Dividend & Tax.
- Purchase of Fixed Assets.
- Purchase of investments.
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