therefore the term flow of funds means “changes in funds” or “changes in working capital”. In other words, any increase or decrease in working capital means “flow of funds”. FUNDS FLOW STATEMENT
Funds flow statements is dealt by Accounting Standard 7 .
. Meaning :- It explains changes in funds or changes in working capital . It explains the working capital position of the company which gives an idea to the top management about the liquidity position of the company.
Working capital:- It is the difference between current assets and
current liabilities.
Steps in preparation of funds flow statement:-
1. Preparation of working capital statement that explains increase or
decrease in working capital. 2. preparation of funds from operation statement in which we find out operating profit. 3. Preparation of funds flow statement that shows various sources and application of fund . Uses of Funds Flow • Why the liquid position of the business becoming more and more unbalanced in spite of company is making more and more profits. • Where have the profit gone • What will be the sources for dividend if company is not earning sufficient profit • What are the sources of repayment of the loan taken • How much funds generation through normal business operation. • In what way the management has utilized the funds in the past and what are going to be likely uses of funds ? Objectives of Fund Flow Statement
• Analysis of Financial Position
• Evaluation of Financing Capacity • Instrument for allocation of resources • Tool of communication to outside world • Future guide