m Funds flow statement is a statement which shows

the movement of funds and is a report of the

financial operations of the business undertaking.
m It indicates various means by which funds were
obtained during a particular period and the ways in
which these funds were employed.
m In simple words, it is a statement of sources and
applications of funds.
m 2 statement of sources and application of funds is
a technical device designed to analyse the
changes in the financial condition of a business
enterprise between two dates.´
m In a narrow sense, funds means cash only and a
funds flow statement prepared on this basis is
called a cash flow statement.
m In a broader sense, the term µfunds¶ means all
financial resources, used in business whether in
the form of men, material, money, machinery and
others.
m In a popular sense, the term µfunds¶ means
working capital, i.e. the excess of current assets
over current liabilities.
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! It highlights the changes in the It depicts the items of expenses

financial position of a business & and income arrive at the figure of profit
indicates the various means and uses of or loss.
funds.

! It is complementary to income This is not prepared from funds flow

statement. Income statement helps in statements.
the preparation of funds flow statement.

! There is no prescribed format for It is prepared in a prescribed format.

preparing funds flow statement.
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! It is a statement of changes in It is a statement of financial position
in financial position and hence is on a particular date and hence is static
dynamic in nature. in nature.

! It shows the sources & uses of funds It depicts the assets and liabilities
in a particular period of time. at a particular point of time

! It is a tool of management for It is not of much help to management in

financial analysis and helps in making making decisions.
decisions.

! chedule of changes in working No such schedule is required.

capital has to be prepared before
preparing before preparing
funds flow statement.
The preparation of funds flow statement consists of
two parts:
1. tatement or schedule of changes in working
capital.
2. tatement of sources and application of funds.
m °orking Capital = Current ssets ± Current
Liabilities
m Important points are:
1. n increase in current assets, increases working
capital.
2. decrease in current assets, decreases working
capital.
3. n increase in current liabilities, decreases
working capital.
4. decrease in current liabilities, increases
working capital.
 =
  
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Increase Decrease
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Cash in hand and at bank
Bills receivable
Debtors
Temporary investments
tocks/Inventories
Prepaid expenses
ccrued incomes

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Prepare a statement of changes in working capital from the
following balance sheets of BC Ltd.
¢
       

Equity capital 500000 500000 Fixed assets 600000 700000

Debentures 370000 450000 Long-term 200000 100000

investments
Tax payable 77000 43000 °ork-in- 80000 90000
progress
ccounts 96000 192000 tock-in-trade 150000 225000
payable
Interest payable 37000 45000 Bills receivable 70000 140000

Dividend 50000 35000 Cash 30000 10000

payable
j
    
This statement is prepared in two formats:
1. Report form
2. T form or an account form or self balancing type
—    
Funds from operation
Issue of share capital
Raising of long-term loans
ale of fixed assets
Non-trading receipts such as dividends received
ale of investments (long-term)
Decrease in °orking Capital (as per schedule of changes in working capital)
j


 
   

Funds lost in operations
Redemption of preference share capital
Redemption of debentures
Repayment of long-term loans
Purchase of fixed assets
Purchase of long-term investments
Non-trading payments
Payments of dividends

Payment of tax

Increase in working capital (as per schedule of changes in working capital)
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 !"
Funds from operations
Issue of share capital
Issue of debentures
Raising of long-term loans
ale of fixed assets
Non-trading receipts such as
dividends
ale of long-term investments
Net decrease in working capital
!" 
Funds lost in operations
Redemption of preference share
capital
Redemption of debentures
Repayment of long-term loans
Purchase of fixed assets
Purchase of long-term
investments
Non-trading payments
Payment of dividends
Payment of tax
Net increase in working capital

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(  = 

¢ 

Particulars Rs. Particulars Rs.
j Depreciation & Depletion or  £pening Balance (of P & L /c)
amortization of fictitious and intangible  Transfers from excess
assets, such as: Goodwill, Patents, provisions
Trade Marks, Preliminary Expenses etc.
 ppreciation in the value of
j ppropriation of Retained Earnings
such as: Transfers to General Reserve, fixed assets
Dividend Equalization Fund, inking  Dividends received
Fund, etc.  Profit on sale of fixed assets
j Loss on sales of any fixed asset   

 



j Dividends (including interim dividend) (balancing figure in case debit side
j Proposed Dividend (if not taken as a exceeds credit side)
current liability)
j Provision for taxation (if not taken as
a current liability)
j Closing balance (of P & L /c)
j 

 


 (balancing
figure, in case credit side exceeds the
debit side)