 WHAT IS FUND FLOW?

 DIAGRAM OF FUND FLOW

 USES AND LIMITATIONS OF FUND FLOW
STATEMENT.
 OBJECTIVES OF FUND FLOW STATEMENT.
 DIFFERENCE BETWEEN FUND FLOW AND CASH
FLOW STATEMENT
 PREPARATION OF FUND FLOW STATEMENT.
 CONCLUSION.
 BIBLIOGRAPHY.
 IN NARROW SENSE,IT MEANS CASH ONLY AND A
FUNDS FLOW STATEMENT PREPARED ON THIS BASIS IS
CALLED A CASH FLOW STATEMENT.SUCH A
STATEMENT ENUMERATES NET EFFECTS OF THE
VARIOUS TRANSCATIONS ON CASH AND TAKES INTO
ACCOUNT RECIPTS AND DISBURSEMENT OF CASH.
 IN A BROADER SENSE, THE TERM ‘FUNDS’ REFERS TO
MONEY VALUES IN WHATEVER FORM IT MAY EXSIST.
MEANS ALL FINANCIAL RESOURCES USED IN BUSINESS
WHETHER IN THE FORM OF MEN,MATERIAL
,MONEY,MACHINERY,METHODES ETC.
 IN A POPULAR SENSE THE TERM ‘FUNDS’ MEANS
WORKING CAPITAL WHICH IS THE EXCESS OF
CURRENT ASSETS OVER CURRENT LIABILITIES
 TRANSFER OF ECONOMIC VALUES FROM ONE
ASSET OF EQUITY TO ANOTHER.
 MOVEMENT OF FUNDS IN WORKING CAPITALS
 IT TAKES PLACE WHEN ANY TRANSACTION
MAKES CHANGES IN THE AMOUNT OF FUNDS
AVAILABLE BEFORE HAPPENING OF THE
TRANSACTION.
 IF THERE IS INCREASE OF FUNDS,IT IS SOURCE
OF FUNDS
 IF THERE IS A DECREASE OF FUNDS,IT IS AN
APPLICATION OF FUNDS
INCREASES SOURCE OR INFLOW
DECREASE APPLICATION OR OUT FLOW
USES:
 EXPLAINS THE FINANCIAL CONSEQUENSES OF
BUSINESS.
 DEBT CAPITAL IS ESSENTIAL FOR INCREASED
PROFITS.
 ACTS AS AN INSTUMENT FOR ALLOCATION
OF COMPANY’S RESOURCES.
 TEST FOR EVALUATING USE OF WORKING
CAPITAL BY THE MANAGEMENT
INFORMATION.
 IGNORES NON – FUND ITEMS.
 DOES NOT REVEAL SHIFTS ITEMS MAIKING UP
THE CURRENT ASSETS AND CURRENT
LIABILITIES.
 IT IS HISTORICAL IN NATURE.
 TO INDICATE THE RESULTS OF CURRENT
FINANCIAL MANAGEMENT.
 TO LAY EMPHASIS ON THE MOST SIGNIFICANT
CHANGES THAT HAS TAKEN PLACE, DURING A
SPECIFIC PERIOD.
 TO SHOW HOW GENERAL EXPANSION IN THE
BUSINESS HAS BEEN FINANCED OR TO
DESCRIBED THE SOURCES FROM WHICH
ADDITIONAL FUNDS WERE DERIVED.
 TO ESTABLISHED THE RELATIONASHIP
BETWEEN PROFIT FROM OPERATIONS,
DISTRIBUTION OF DIVIDEND AND RISING OF
CAPITAL OR CONTRATING OF LOANS.

 TO GIVE RECOGNITION TO THE FACT THAT A

BUSINESS EXISTS IN THE FLOW OF FUNDS AND
IS NOT STATIC ORGANISATION.
 FUND FLOW STATEMENT CASH FLOW STATEMENT
1. IT IS BASED ON THE CONCEPT 1. IT IS BASED ON THE CONCEPT
OF WORKING CAPITAL.. OF CASH.

2. IT REVEALS CHANGES IN 2. IT REVEALS CHANGE IN CASH

WORKING CAPITAL POSITION POSITION BETWEEN TWO
BETWEEN TWO BALANCE SHEET BALANCE SHEET DATES.
DATES.

3.CLASSIFICATION OF ASSETS AND 3. NO SUCH CLASSIFICATION

LIABILITIES INTO CURRENT AND NECESSARY.
NON – CURRENT CATEGORIES IS
ESSENTIAL.

4. THESE STATEMENTS MATCH 4. IT COMMENCES WITH OPENING

SOURC ES AND APPLICATION OF CASH BALANCE AND ENDS WITH
FUND. CLOSING CASH BALANCE.
 FUND FLOW STATEMENT CASH FLOW STATEMENT
5. AN IMPROVEMENT IN CASH 5. AN INCREASE IN CASH ON HAND
POSITION RESULTS IN THE DOES NOT RESULT IN INCREASE IN
IMPROVEMENT IN WORKING WORKING CAPITAL..
CAPITAL.

6. IT IS LONG –TERM TOOL 6. IT IS A SHORT – TERM TOOL OF

FINANCIAL ANALYSIS. FINANCIAL ANALSIS.
ISSUE OF SALES OF FIXED Long term Operational
SHARES ASSETS borrowings profit

Funds

Redemption of Purchase of Payment or long Payment of

pref.shares. fixed assets. term loans. tax/Dividend.
 INVOLVES TWO STATEMENTS:
1. STATEMENT OR SCHEDULE OF CHANGES IN
WORKING CAPITAL
2. SOURCES AND USES OF FUND STATEMENT.
RULES FOR PREPARING THE STATEMENT OF
CHANGES IN WORKING CAPITAL:
1. INCREASE IN CURRENT ASSET, RESULTS IN
INCREASE (+) IN WORKING CAPITAL.
2. DECREASE IN CURRENT ASSET, RESULTS IN
DECREASES (-) IN WORKING CAPITAL.
3. INCREASE IN A CURRENT LIABILITY, RESULTS
IN DECREASE (-) IN WORKING CAPITAL.
4. DECREASE IN A CURRENT LIABILITY, RESULTS
IN INCREASE (+) IN WORKING CAPITAL.
 PREVIOUS YEAR CURRENT EFFECT OF CHANGE ON
RS. YEAR WORKING CAPITAL
RS. INCREASE DECREASE
RS. RS.
CURRENT
ASSETS
CASH
BANK
B/R
DEBTORSSTOCK
PREPAID
EXPENSES

TOTAL (a)
CURRENT
LIABILITIES
OUTSTANDING
EXP
B/P
CREDITORS
TOTAL (b)

WORKING CAPITAL (a-b)

NET INCREASE/DECREASE IN
WORKING CAPITAL
Eg.: FROM THE FOLL. TWO BALANCE SHEETS ON
31.03.2001 AND 31.03.2002 PREPARE A SCHEDULE
OF CHANGES IN WORKING CAPITAL.
LIABILITIES 2002 2001 ASSETS 2002 2001
RS. RS. RS. RS.
SHARE 3,25000 3,00000 LAND &, 5,00000 4,00000
CAPITAL 1,20000 1,00000 BUILDINGS 1,00000 1,60000
P and L A/C 2,00000 2,00000 MACHINERY
9% STOCK – IN 1,00,000 80,000
DEBENTURES 98,000 75,000 TRADE 30,000 36,000
TRADE DEBTORS 5,000 4,000
CREDITORS 2,000 5,000 CASH 7,45,000 6,80000
OUTSTANDING
CREDITORS 7,45000 6,80000
 EFFECTS WORKING
2001 2002 ON
RS. RS. CAPITAL

INCREASE DECREASE
(+) (-)
RS. RS.
CURRENT ASSETS:
STOCK – IN TRADE 80,000 1,10,000 30,000
DEBTORS 36,000 30,000 6,000
CASH 4,000 5,000 1,000
(a) TOTAL CURRENT 1,20000 1,45,000
ASSET
CURRENT LIABILITIES:
TRADE 75,000 98,000 23,000
CREDITORS
OUTSTANDING 3,000
CREDITORS 5,000 2,000
(b) TOTAL CURRENT
LIABILITIES 80,000 1,00,000
WORKING CAPITAL (a
-b) 40,000 45,000 5,000

NET INCREASE IN
WORKING CAPITAL 5,000
45,000 45,000 34,000 34,000
 SOURCES RS. APPLICATIONS RS.

ISSUES OF SHARES REDEMPTION OF SHARES

ISSUES OF REDEMPTION OF
DEBENTURES DEBENTURES
LONG TERM & MIDDLE REPAYMENT OF LOANS
– TERM LAONS TAKEN
PURCHASE OF
SALES OF INVESTMENTS
INVESTMENTS PURCHASE OF FIXED
SALES OF FIXED ASSETS
ASSETS PAYMENT OF DIVIDENDS
TRADING PROFITS (LAST YEAR AND INTERIM)
NON – TRADING FUNDS LOST FROM
INCOME OPERATIONS
NON – TRADING PYMENTS
NET DECREASE IN NET INCREASE IN WORKING
WORKING CAPITAL, AS CAPITAL AS PER SCHEDULE
PER SCHEDULE OF OF CHANGES IN WORKING
Fund flow statement is very important for every
organization. It can really determine how the
business should be carried on in the future. we
can proper utilize the budget of the company and
the strategy to cope the financial problems of the
company through the preparation of the fund
flow statement. As we know the aim of fund flow
statement is to know the working capital of the
company whether it increases or decreases
during a given period of time. So it is a main tool
to make a organization to survive in the future.
 SRINIASAN N.P. & MURUGAN N. SAKTHIVEL, 4TH
EDITION 2004,ACCOUNTING FOR MANAGEMENT,
S.CHAND PUBLICATIONS, NEW DELHI, p. 258 –
263.
 http://www.futureaccountant.com/funds-flow-
cash-flow/study-notes/funds-flow-statement-
inflow-outflow-sources-applications-funds.php
 http://www.scribd.com/doc/13261978/Analysis
-of-Fund-Flow-Statement-ppt#fullscreen:on
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