FUNDS FLOW SATEMENT

Flow of Fund means the inward and outward

movement of a fund of an enterprise.
For the purpose, Fund refers to Working
Capital and flow means movement or
changes.
Therefore, Flow of Fund means movement of
or changes in the Working Capital (i.e.,
current) items.
 Flow of Fund is identified by the means of inward or outward
movement of Current Assets and Current Liabilities.
 When Current Assets increase or Current
Liabilities decrease—Inflows of Fund.

Working
Capital
The Funds flow statement contain all the details of
the financial resources which have became
available during an accounting period.
This statement discloses the amounts raised
from various sources of finance during a period.
It explains that how finance has been used in the
business.
It is a very useful tool in analysis of financial
statements which analyses the changes taking
place between two balance sheet dates.
Fund Flow Statement acts as an important tool for
financial analysis and shows the brief reasons for change
in the Working Capital between two Balance Sheet
dates.
Fund Flow Statement explains how the financial
position has changed from the beginning of an
accounting period to the end of that period.
It acts as an important instrument for allocation of
resources of a concern.
It can be used in planning a sound dividend policy.
It is useful in forecasting the flow of funds and in
projecting the working capital requirements.
Fund Flow Statement is not a basic Financial Statement, but is a
supplementary statement. It does not disclose any new fact which is not
reflected in the Income Statement and the Balance Sheet.

It provides a partial financial information to the management.

It cannot present the continuous changes in the financial position.

It does not indicate the structural change of an asset or a liability.

It is prepared on the basis of historical data.

It exhibits the changes in the Fund position, but does not indicate the
changes in the cash position, which is most important for every business
concern.
The changes which occurred in the current accounts as
a result flow of fund are reflected in a statement
known as ‘schedule of changes in working
capital’ .
The similar changes in non current accounts are shown
in ‘Fund Flow Statement’.
Therefore, following two statements under this
techniques .
1.Statement or Schedule of Changes
in Working Capital.
2. Statement of Sources and Uses of Funds or
Funds Flow Statement.
 A funds flow statement depicts change in working capital.

It will, therefore, be better for the

It can be prepared by comparing the students to prepare first a
current assets and the current Schedule of Changes in Working
liabilities of two periods. Capital before preparing a funds
flow statement.

The primary purpose of the statement is to explain the net

change in Working Capital, as arrived in Funds Flow Statement.
 Statement or Schedule of Changes in Working Capital.

Previous Year Current Year Working Capital Working captial

Item Increase Rs. Decrease Rs.

(A) Current Assets

Cash at bank
Cash in hand
Stock in trade
Debtors
Bills receivable
Advance payment
Short term investment
Prepaid expense
Accrued income
Total (A)
(B) Current Liabilities
(1) Short term
loans
(2) Bank overdraft
(3) Creditors
(4) Bills payable
(5) Outstanding

expenses
(6) Unclaim
dividend Total
(B)
Net Working Capital (A-
 An increase in current assets, increases working capital

A decrease in current assets, decreases working capital

An increase in current liabilities, decreases working capital

A decrease in current liabilities, increases working capital

In order to prepare a Funds Flow Statement, it is
necessary to find out the “sources” and “applications” of
funds.
While preparing a funds flow statement, current assets
and current liabilities are to be ignored.
Consider the changes in Fixed Assets and
Fixed Liabilities.
 Sources of Funds Amount Application of Funds Amount
Issue of share capital ……. Redemption of pref. share ……..
Issue of debenture ……. Redemption of debenture ……..

Raising of long term loan ……. Payment of long term loan ……..

Sales of fixed assets ……. Purchase of fixed assets ……..

Interest received ……. Interest paid ……..

Dividend received ……. Dividend paid .…….

Refund of Taxes ……. Payment of Taxes ……..

Decrease in working capital ……. Increase in working capital ……..

Fund from operation …….

TOTAL …….. TOTAL ……..
 Particular Amount Particular Amount

Depreciation Profit or gain on sale of

Loss on sale of fixed assets fixed asset
Under writing commissions Dividend received
Discount on issue of shares & Interest received of
debentures investment
Preliminary expense written Profit on
of revaluation
Deferred revenue expenses
of asset
Goodwill written off
Patent or trademark Fund from
Provision for taxes
operation
(If treated non current)
 Balance Sheet of M / s _

as on 31stMarch as on 31stMarch
Liabilities Assets
2006 2007 2006 2007

Goodwill (at Cost)

Land and Buildings 6,00,000 6,00,000
Capital
18,50,000 21,00,000 18,50,000 22,00,000
Profit/Loss Plant and
14,78,000 17,64,000 Machinery 4,74,000 5,24,000
Appropriation
12,00,000 9,00,0000 Furniture and 1,94,000 1,94,000
Bank Loan
4,00,000 6,80,000 8,26,000 7,24,000
Bills Payable Fittings
14,00,000 12,20,000 Stock/Inventories 12,00,000 12,80,000
Sundry Creditors
2,00,000 1,80,000 Sundry Debtors 8,00,000 7,21,000
Reserve for
5,00,000 4,83,000
Taxation Bills Receivable
84,000 1,18,000
Bank
Cash
 Balance Sheet of M/s

as on 31stMarch as on 31stMarch
Liabilities Assets
2006 2007 2006 2007

Goodwill (at Cost) 6,00,000 6,00,000

Land and Buildings 18,50,000 22,00,000
Capital 18,50,000 21,00,000
Plant and Machinery 4,74,000 5,24,000
Profit/Loss Appropriation 14,78,000 17,64,000
Furniture and Fittings 1,94,000 1,94,000
Bank Loan 12,00,000 9,00,0000
Stock/Inventories 8,26,000 7,24,000
Bills Payable 4,00,000 6,80,000
Sundry Debtors 12,00,000 12,80,000
Sundry Creditors 14,00,000 12,20,000
Bills Receivable 8,00,000 7,21,000
Reserve for Taxation 2,00,000 1,80,000
Bank 5,00,000 4,83,000
Cash 84,000 1,18,000

TOTAL 65,28,000 68,44,000 TOTAL 65,28,000 68,44,000

Current Items
Non-Current Items
 Schedule/Statement of Changes in Working Capital for the period from 31/03/06 to 31/03/07
Balance as on 31st March Working Capital Change
Particulars/Account
2006 2007 Increase Decrease
a) CURRENT ASSETS
826,000 724,000 102,000
1) Stock/Inventories
1,200,000 1,280,000 80,000
2) Sundry Debtors
800,000 721,000 79,000
3) Bills Receivable 17,000
500,000 483,000
4) Bank 34,000
84,000 118,000
5) Cash
TOTAL 3,410,000 3,326,000 114,000 198,000

b) CURRENT LIABILITIES

1) Bills Payable 400,000 680,000 280,000

1,400,000 1,220,000 180,000
2) Sundry Creditors
200,000 180,000 20,000
3) Provision for Taxation
TOTAL 2,000,000 2,080,000 200,000 280,000

Working Capital [(a) - (b)] 1,410,000 1,246,000

TOTAL 314,000 478,000

There is a decrease in working capital to the extent
of
164,000.
The net change can also be obtained from the working
capital figures relating to the two balance sheet dates.
Change in Working Capital =
Working Capital as on 31/03/07 - Working Capital as
on 31/03/06
= 1,246,000 – 1,400,000
= - 164,000
Negative value indicates a decrease in working capital.
When there is no additional data apart from the
balance sheets and we are sure that there are no
other transactions that have affected the non-
current accounts.
Therefore, we may derive the inflow/outflow by
comparing the opening and closing figures.
 Statement of changes in Non-Current Accounts

Balance as on 31st Dec Change

Account Type Result

2006 2007 Amount Direction

Capital 18,50,000 21,00,000 2,50,000 Increase Liability Inflow

Profit/Loss 14,78,000 17,64,000 2,86,000 Increase Inflow
Appropriation 12,00,000 9,00,000 3,00,000 Decrease Liability outflow
Bank Loan 18,50,000 22,00,000 3,50,000 Increase
Land and Building 4,74,000 5,24,000 50,000 Increase Liability outflow
Plant and Machinery Assets
Assets outflow
 Statement of Sources and Applications of Funds for the period from 31/03/06 to
31/03/07
Applications/Outflows
Sources/Inflows of Funds Amount Amount
of Funds

Capital 2,50,000 Land and Buildings 3,50,000

Funds from Operations 2,86,000 Plant and Machinery 50,000
[P/L Appropriation a/c] Bank Loan 3,00,000

5,36,000 7,00,000

Change in Fund (Working

1,64,000
Capital)

Since the Applications/outflows are more than the Sources/Inflows of Funds there is a Net
decrease in Fund (Working Capital) = 700,000 – 536,000 = 164,000
 Balance Sheet of M/s

As on 31st December As on 31st December

Liabilities Assets
2004 2005 2004 2005

10,000 15,000
Share Capital 5,000 8,000
Cash
Profit and Loss 5,000 8,000 Debtors 10,000 15,000
Appropriation account 4,000 6,000 Stock 10,000 12,000
Long Term Loan 8,000 12,000 Machinery 3,000 5,000
5,000 3,000 Land
Sundry Creditors 4,000 4,000
Bills Payable

32,000 44,000 32,000 44,000