A report on the movement of funds or working capital.

In a narrow sense the term fund means cash and the

fund flow statement depicts the cash receipts and cash disbursements/ payments. It highlights the changes in
the cash receipts and payments as a cash flow statement in addition to the cash balances i.e., opening cash
balance and closing cash balance. Contrary to the earlier, the fund means working capital i.e., the differences
between the current assets and current liabilities.
The term flow denotes the change. Flow of funds means the change in funds or in working capital. The change
on the working capital leads to the net changes taken place on the working capital i.e., especially due to either
increase or decrease in the working capital. The change in the volume of the working capital due to numerous
transactions.
Some of the transactions may lead to increase or decrease the volume of working capital. Some other
transactions neither registers an increase nor decrease in the volume of working capital.
According to Foulke A statement of source and application of funds is a technical device designed to analyse
the changes to the financial condition of a business enterprise in between two dates
Various Facets of Fund flow statement are as follows:
Statement of sources and application of funds
Statement changes in financial position
Analysis of working capital changes and
Movement of funds statement
Objectives of Funds Flow Analysis
Objectives of fund flow statement analysis:
(1) It pinpoints the mobilization of resources and the further utilization of resources
(2) It highlights the financing of the general expansion of the business firms
(3) It exemplifies the utilization of debt finance in the structure of financing
(4) It portrays the relationship between the financing, investment, liquidity and dividend decision of the firm
during the given point of time.
Distinction Between funds Flow Statement and Balance Sheet
A summary of main points of differences between these two is give below:(i) Balance sheet is a statement showing the financial position of the concern on a particular date. The asset
side portrays the development of resources in various type of properties an liabilities side indicates the manner
in which these resources are obtained. It shows all assets and liabilities whether current or fixed, tangible or
intangible etc., while Funds Flow Statement shows the changes in current assets an current liabilities during a
particular period of time.
(ii) Balance Sheet shows the total financial position on a particular date and in this way, it is of a historical
nature an therefor, its utility is very limited for the management. On the other hand, Funds Flow Statement is a
comparative statement of assets and liabilities and depicts the changes in working capital during the period of
two Balance sheets.
(iii) Funds Flow Statement is an analysis and control device for the management. Management can ensure the
long term an the short term solvency of the firm by studying the internal funds flow cycles. It is a modern
technique of knowing the inflows and outflows of funds during a particular period. Balance Sheet represents
the balance of various assets an liabilities and does not present analysis of any kind.
(iv) There are two views of h financial position of the firm-long term an short-term. Short-term financial
position means the technical solvency of the firm in the near future while on the other hand, long-term

financial position means future financial structure of the firm. Both are inter-relate but there is a differences in
their analysis. The short-term view of the financial position of the firm ca not be had from the Balance Sheet.

Distinction Between funds Flow Statement and Cash Flow Statement

A distinction between these two statements may be briefed as under:(i) Funds Flow Statement is concerned with all items constituting funds (Working Capital)for the business
while Cash Flow Statement deals only with cash transactions. In other words, a transaction affecting working
capital other than cash will affect Funds statement, and not the Cash Flow Statement.
(ii) In Funds Flow Statement, net increase or decrease in working capital is recorded while in Cash Flow
Statement, individual item involving cash is taken into account.
(iii) Funds Flow statement is started with the opening cash balance and closed with the closing cash balance
records only cash transactions.
(iv) Cash Flow Statement is started with the opening cash balance and closed with ht closing cash balance
while there a no opening or closing balances in Funds Flow Statement.
Methods Of Preparing Fund Flow Statement
Steps in the preparation of Fund Flow Statement:
First and fore most method is to prepare the statement of changes in working capital i.e., to identify the
flow of fund / movement of fund through the detection of changes in the volume of working capital.
Second step is the preparation of Non- Current A/c items-Changes in the volume of Non current a/cs
have to be prepared only in order to quantify the flow fund i-e either sources or application of fund.
Third step is the preparation Adjusted Profit& Loss A/c, which already elaborately discussed in the
early part of the chapter.
Last step is the preparation of fund flow statement.
Step 1: Schedule of Changes in Working Capital
The ultimate purpose of preparing the schedule of changes in the working capital is to illustrates the changes in
the volume of net working capital which envisages either sources or application of fund. The schedule of
changes are focused as follows:

Step 2:

The first method is widely used method by all in determining the volume of Fund from Operations (FFS)
Under the Net Profit Method, Fund flow from operations can be computed
1. Net Profit Method
Under this method, Fund from operations can be determined in two different ways .The first method is through
the statement format
Net Profit from the Profit & Loss A/c
xxxxx
Add:
(A) Non Funding Expenses:
Loss on Sale of Fixed Assets
xxxx
Loss on Sale of Long Term Investments
xxxx
Loss on Redemption Debentures/Preference Shares
xxxx
Discount on Debentures /Share
xxxx
(B) Non Operating Expenses:
Depreciation of fixed Assets
xxxx
(C) Intangible Assets:
Amortization of Goodwill
xxxx
Amortization of Patent
xxxx
Amortization of Trade Mark
xxxx

(D) Fictitious Assets:

Writing off Preliminary expense
Writing off Discount on Shares/Debentures
(E) Profit Appropriation
Transfer to General Reserve
Less:
(F) Non funding Profits:
Profit on Sale of Fixed Assets
Profit on Sale of Long Term Investments
Profit on Redemption Debentures/Preference Shares
(G) Non Operating Incomes:
Dividend Received
Interest Received
Rent Received
Fund From operations / Fund Lost in Operations

xxxx
xxxx
xxxx
xxxx
xxxx
xxxx
xxxx
xxxx
xxxx
xxxxx

The second method of determining the fund from operations under the first classification is the Accounting
Statement Format.

Adjusted Profit & Loss A/c

Step 3: Preparation of Funds flow satement