Assets are always equal to equity and liabilities: Assets = Equity + Liabilities

Cash and bank balance Accounts receivable (debtors) Inventory (stocks) Advances to suppliers Prepaid expenses

Current Assets

 Tangible fixed assets are physical assets like plant. Intangible fixed assets are the firms rights and claims, such as patents, copyrights, goodwill etc. Gross block represent all tangible assets at acquisition costs. Net block is gross block net of depreciation.

Fixed Assets

 Current liabilities Accounts payable (creditors) Outstanding expenses Advances from customers Provision for tax Provision for dividend Long-term liabilities Borrowings from financial institutions and banks etc. Debentures/bonds:
Non-convertible Fully convertible Partly convertible

Liabilities

 Revenue is the amount received or receivable within the accounting period from the sale of the firms goods or services. Operating revenue is the one that arises from main operations of the firm, and the revenue arising from other activities is called non-operating revenue.

Examples: raw material consumed, salary and wages, power and fuel, repairs and maintenance, rent, selling and marketing expenses, administrative expenses.

Expense

Expenses are expired costs and capital expenditures represent unexpired costs and appear as assets in balance sheet.

 Depreciation is a charge for the use of fixed assets; it is an expense. It is a non-cash expense since cash was paid at the time fixed assets were acquired. Expenditures incurred on acquiring assets are called capital expenditures. Depreciation is allocation of these expenditures over the life of assets that have helped in generating revenue.

Accounting profit is a result of the arbitrary allocation of expenditures between expenses (revenue expenditure) and assets (capital expenditure). Economic profit is the net increase in the wealth of the firm, and it is measured in cash flow.

 Funds flow is a change in a firms net current assets while cash flow is a change in the firms cash position. Funds or cash flows occur due to changes in items in the balance sheet and profit & loss statement. liquidity analysis involves measurement of changes in assets, liabilities and equity.

What funds were available during the accounting period and for what purpose these funds were utilized? Have long term sources been adequate to finance fixed asset purchase? Does the firm possess adequate working capital? How much funds have been generated from operations? Why did the firm not pay dividend in spite of adequate profit?

Sources and Uses of Funds and Cash Flows

Sources of funds or cash flows:
funds from operations sale of fixed assets issue of share capital borrowings

Uses of funds are:

losses purchase of fixed assets repayment of borrowings payment of dividends

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 Funds flow from operations + PAT ( loss) + Depreciation + Other non-cash expenses Non-cash incomes + Loss from the sale of fixed assets Gain from the sale of fixed assets

Funds from Operations

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Uses of Funds and Cash Flow Statements

Liquidity position Capital expenditures Dividends paid Retained earnings External financing Repayment of loans Non-performing assets

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The increase or decrease in net working capital will take place only when one account, out of two accounts to be affected in a transaction ,is a current account and the other account is non current account

 Statement or Schedule of Changes in Working Capital. Statement of Sources and Uses of Funds or Funds Flow Statement

Statement or Schedule of Changes in Working Capital.

Previous Year
Item (A) Current Assets Cash at bank Cash in hand Stock in trade Debtors Bills receivable Advance payment Short term investment Prepaid expense Accrued income Total (A) (B) Current Liabilities (1) Short term loans (2) Bank overdraft (3) Creditors (4) Bills payable (5) Outstanding expenses (6) Unclaim dividend Total (B) Net Working Capital (A-B) Increase / Decrease in Working Capital Total

Current Year

Effect

on

Increase Rs.

Working captial Decrease Rs.

Sources of Fund
Fund from operation Issue of share Issue of debenture long term loans Sale of fixed assets / Investment Non trading receipts Decrease in working capital (if any)

Amount

Uses Of Funds

Amount

Loss from operation Redemption of preference shares Redemption of debentures Repayment of long term loans Purchase of fixed assets / Investments Payment of dividend & taxes Increase in working capital (if any)