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This statement is prepared to know clearly the various items of inflow & outflow of cash. It is an essential tool for short-term financial analysis & is very helpful in the evaluation of current liquidity of business concern. It is helps the business executives of a business in the efficient cash management


This statement is prepared in order to reveal clearly the various sources where from the fund are procured to finance the activity of business concern during the accounting period & also brings the highlights the use of which these funds are put during the said period. A fund flow statement is statement which reflects movements of fund. The statement is called Statement of sources & application of funds, Statement of derivation & disposition of means of operation, where got, where gone statement.

SOURCE OF FUNDS:Funds mat derived from:1 Issue of share capital 2 Borrowing 3 Sale of fixed assets & investment 4 Income from investments 5 Income from trading operations (i.e. Profits) 6 Decrease of working capital 7 Non-trading operations like dividend, gifts etc received.

APPLICATINS OF FUNDS:Repayment of debenture, loans & rede4emable shares 2 Purchase of investments & other fixed assets 3 Payments of dividends 4 Increase in working capital 5 Loss in account of trading operations 6 Non trading operations


The statement is useful to both external & internals parties concerned. The statement is helpful to consider in the following respects:1 To assess the fund available for payment of dividends & interest on the investment 2 To assess the efficiency of management in application of funds. 3 To assess probable expected returns on future investment 4 To assess degree of risk involved in lending money to the concern The statement is helpful to management in the following respects:1 Management knows the resources & application or funds & their composition 2 The statement, though historical in nature, may be said to be a counter part to business budgetary control system. Management mat know, whether the working capital has been efficiently used or not.

CONSTRUCTION OF A FUND FLOW STATEMENT Construction of the fund flow statement involves the following three important stages:1 Determination of working capital and ascertainment of increase in working capital over a period of time. 2 Determination of funds generated business operation 3 Accounting for the change in non current account i.e. fixed asset fixed liabilities.

USES/ADVANTAGES OF CASH FLOW STATEMENT It is a helpful in the evaluation of cash position of a firm. It helps the management in understanding the past behaviour of cash cycle & in controlling the uses of cash in future The repayment of loan, replacement of assets & other such program can be planned on its basis. it throws light on the factors contribution to the reduction of cash balance in spite of increasing in income or vice-versa. A comparison of cash flow statement with the budgeted forecast of cash for the same period helps in comparison & control on cash expenditure. This statement is helpful in short term financial decisions relating of liquidity & ways means positions of the firm.

DIFFERENCE BETWEEN FUND FLOW & CASH FLOW 1. Cash flow deals with the cash transaction only, while fund flow is concerned with all the items constituting funds for the financing of assets acquisition program 2. In cash flow statement only cash receipts & disbursement their net effect is recorded 3. Cash flow concerned with cash only while fund flow is concerned with the total provision of funds .A fund flow statement is a flexible device designed to disclose & emphasize all significant change in current assets & liability of the firm during the period under study.