2. What Is Fund
‘Funds’ refers to money values in whatever form it may
exist. Means all financial resources used in business
whether in the form of men, material, money,
machinery, methods etc.
The term ‘funds’ means working capital
Working Capital = Current Asset – Current Liability
3. Fund Flow Statement
Fund Flow Statement Fund flow statement is –
A statement shows the changes in funds
between two balance sheet of two different
dates.
A statement to trace the movement of working
capital in the company.
4. Preparation of Fund Flow Statement
Statement of changes in working capital (before
taking into consideration any adjustments).
“Funds from Operations” or “Operating Profits on
accrual basis”
Prepare Funds Flow statement.
5. Rules For Preparing The Statement Of
Changes In Working Capital
Increase in current asset, results in increase (+) in
working capital.
Decrease in current asset, results in decreases (-) in
working capital.
Increase in a current liability, results in decrease (-) in
working capital.
Decrease in a current liability, results in increase (+) in
working capital.
6. Funds from Operations
Funds from operations refer to those funds which are
generated in the business as a result of carrying out the
operations during the normal course of the business and
are computed by taking out the difference between the
operating revenues that provided funds during the
accounting period and operating expenses that involved an
outflow of funds during the accounting period.
7. Preparing Fund Flow Statement
Sources of Funds Application of Funds
Funds from operations(w.n.)
Issue of shares for Current assets
Issue of debentures for current
assets
Raising of loans and overdrafts
Sale of fixed assets
Interest received and dividend
received
Sale of Investments
Net Decrease in Working Capital
(as calculated from schedule)
Redemption of shares
Redemption of Debentures
Repayment of loan and bank
overdraft
Purchase of Fixed assets
Interest paid
Dividends paid(PY)
Interim dividend paid
Payment of tax(PY)
Purchase of investments
Net Increase in Working Capital
(as calculated from schedule)
8. Objectives of Funds Flow Statement
The Basic objective of funds flow statement is to
indicate the sources from which the funds (i.e.,
working capital) were obtained and the specific uses to
which such funds (i.e., working capital ) were applied
between the dates of two balance sheets.
9. Uses of Funds Flow Statement
As a tool of historical analysis, it provides an answer to some
of the important financial questions such as:
• Why dividends are not paid though company earned higher
profits than previous year.
• Why has the net working capital decreased although the net
income for the period has gone up.
• Why did the firm resort to long-term borrowings inspite of
large profits.
• Why did the firm issue new equit or preference shares
10. Limitations of Funds Flow statement
• Ignores the Non-Fund Transaction
• Secondary Data Based Statement
• Historical Statement
