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Content
• Understanding Balance Sheets
• Fund Flow Statements
• Cash Flow Statements
Balance Sheet:
• Definition: A snapshot of a company's assets (what it owns), liabilities
(what it owes), and shareholder equity (owner's investment) at a specific
point in time.
• Key Components:
• Assets: Current assets (cash, inventory, receivables), long-term assets
(property, equipment)
• Liabilities: Current liabilities (accounts payable, short-term loans), long-term
liabilities (bonds, mortgages)
• Shareholder Equity: Common stock, retained earnings (profits reinvested)
• Relationship: Assets = Liabilities + Equity
• Analysis:
• Liquidity: Ability to meet short-term obligations (current assets vs. current liabilities)
• Solvency: Ability to meet long-term obligations (total assets vs. total liabilities)
• Financial stability: Debt-to-equity ratio (measures reliance on debt)
Liabilities Amount Assets Amount
Capital a/c: Tangible fixed assets:
Balance xxxx Land and building Xxxx
Add: net profit/less net
Plant and machinery Xxxx
loss xxxx
Less: drawings xxxx xxxx Vehicle Xxxx
Long term loans: Furniture and fixtures Xxxx
Term loans Xxxx Intangible assets:
Other loans Xxxx Goodwill Xxxx
Short term loans: Patents Xxxx
Investments:
Overdraft Xxxx Long term investment Xxxx
Other loans Xxxx Current assets:
Current liabilities: Cash in hand Xxxx
Trade payables Xxxx Cash at bank Xxxx
Outstanding expenses Xxxx Inventory xxxx
Advance taken Xxxx Trade receivables Xxxx
Provision: Prepaid expenses Xxxx
Provision for bad and doubtful debts xxxx Short term investment Xxxx
Provision for taxation xxxx Advance Xxxx
Xxxx Xxxx
Fund Flow Statement:
• A Fund Flow Statement is a financial statement that provides a
summary of a company's financial activities over a specific period of
time. It is also known as a Statement of Changes in Financial Position.
The primary purpose of a Fund Flow Statement is to analyze the
changes in a company's financial position between two different
balance sheet dates. It helps users understand how funds (money)
moved within the organization during a particular period.
The Fund Flow Statement is divided into two
sections: sources of funds and uses of funds.
• Sources of Funds:
• This section represents the inflow of funds into the company. It includes:
• Increase in Share Capital: If the company issues new shares.
• Issuance of Long-Term Debt: If the company borrows money through
long-term loans or bonds.
• Sale of Assets: If the company sells any fixed assets.
• Uses of Funds:
• This section represents the outflow of funds from the company. It includes:
• Repayment of Long-Term Debt: If the company pays back its long-term
loans.
• Payment of Dividends: If the company distributes profits to shareholders.
• Purchase of Assets: If the company buys new fixed assets.
• Operating Expenses: Including day-to-day operational costs.
 Cash Flow Statement:
• Definition: Tracks the movement of cash in and out of a company over a specific
period.
• Key Components:
• Cash Flow from Operations: Cash generated from core business activities
• Cash Flow from Investing: Cash inflows/outflows from buying/selling assets
• Cash Flow from Financing: Cash inflows/outflows from borrowing/repaying
debt, issuing/repurchasing shares
• Analysis:
• Liquidity: Ability to meet financial obligations without relying on external funding
• Investment activity: Growth strategy (acquisitions, capital expenditures)
• Financing needs: Dependence on debt or equity for funding
• Interconnecting the Statements:
• The Income Statement feeds into the Cash Flow Statement (net income is a starting
point for cash flow from operations).
• The Balance Sheet and Cash Flow Statement inform each other (changes in assets
and liabilities are reflected in cash movements).
• A Cash Flow Statement is a financial statement that provides information about the cash
inflows and outflows of a business over a specific period of time. It is one of the key
financial statements and is essential for assessing a company's ability to generate cash
and its liquidity. The Cash Flow Statement is divided into three main sections:
• Operating Activities: This section reports the cash generated or used in the company's
core operating activities. It includes transactions related to the principal revenue-
producing activities of the business. Examples of cash inflows from operating activities
include cash received from customers, interest, and dividends. Cash outflows include
payments to suppliers, employees, and operating expenses.
• Investing Activities: The investing activities section focuses on the cash transactions for
the purchase and sale of long-term assets, such as property, equipment, and
investments. Cash inflows in this section may result from the sale of assets, while cash
outflows may result from capital expenditures or acquisitions.
• Financing Activities: This section details the cash transactions between the company and
its owners and creditors. It includes activities related to the company's capital structure,
such as issuing or repurchasing stock, issuing or repaying debt, and payment of
dividends. Cash inflows from financing activities may include proceeds from issuing stock
or borrowing money, while cash outflows may include dividend payments and debt
repayments.
Key components of the Cash Flow
Statement include:
• Net Cash Flow: The difference between total cash inflows and total
cash outflows.
• Beginning and Ending Cash Balances: The amount of cash and cash
equivalents at the beginning and end of the reporting period.
• Non-Cash Activities: Some investing and financing activities may not
involve cash transactions. These are disclosed separately to provide a
more accurate picture of the cash movements.
Conclusion
• Balance Sheets, Fund Flow Statements, and Cash Flow Statements—
provides a holistic perspective on a company's financial health. The
Balance Sheet offers a snapshot, Fund Flow Statements delve into
long-term solvency, and Cash Flow Statements focus on short-term
liquidity. Together, they empower strategic decision-making by
revealing insights into operational efficiency, investment decisions,
and overall financial strategies. Recognizing the interplay of these
statements is essential for informed decision-making and financial
literacy, enabling individuals to navigate the complexities of financial
landscapes with confidence.
 Summary
YOU GOT THIS NEXT SESSION

• Financial Statements •Financial Planning and Forecasting

• Understanding Balance Sheets •Financial Goal Setting
• Income Statements •Forecasting Techniques
• Cash Flow Statements

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