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    Introduction Fund Flow Statement

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    T S Kumar Kumar
    The document discusses the fund flow statement, which analyzes changes in a business's financial position between two dates. It explains that a fund flow statement depicts sources and uses of cash as well as changes in working capital. The objectives of a fund flow statement are to identify how resources are obtained and used, financing of business expansion, use of debt financing, and the relationship between financing, investment, liquidity and dividends. Key steps to prepare a fund flow statement include determining changes in working capital, non-current account items, an adjusted profit and loss statement, and the fund flow statement itself.

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    Introduction Fund Flow Statement

    Uploaded by

    T S Kumar Kumar
    734 views3 pages
    The document discusses the fund flow statement, which analyzes changes in a business's financial position between two dates. It explains that a fund flow statement depicts sources and uses of cash as well as changes in working capital. The objectives of a fund flow statement are to identify how resources are obtained and used, financing of business expansion, use of debt financing, and the relationship between financing, investment, liquidity and dividends. Key steps to prepare a fund flow statement include determining changes in working capital, non-current account items, an adjusted profit and loss statement, and the fund flow statement itself.

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    The document discusses the fund flow statement, which analyzes changes in a business's financial position between two dates. It explains that a fund flow statement depicts sources and uses of cash as well as changes in working capital. The objectives of a fund flow statement are to identify how resources are obtained and used, financing of business expansion, use of debt financing, and the relationship between financing, investment, liquidity and dividends. Key steps to prepare a fund flow statement include determining changes in working capital, non-current account items, an adjusted profit and loss statement, and the fund flow statement itself.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    734 views3 pages

    Introduction Fund Flow Statement

    Uploaded by

    T S Kumar Kumar
    The document discusses the fund flow statement, which analyzes changes in a business's financial position between two dates. It explains that a fund flow statement depicts sources and uses of cash as well as changes in working capital. The objectives of a fund flow statement are to identify how resources are obtained and used, financing of business expansion, use of debt financing, and the relationship between financing, investment, liquidity and dividends. Key steps to prepare a fund flow statement include determining changes in working capital, non-current account items, an adjusted profit and loss statement, and the fund flow statement itself.

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    Management Accounting (BBA32) UNIT-4

    Unit – IV
    FUND FLOW STATEMENT
    Objectives
    After studying this unit, you will be able to:
    � Explain the meaning of fund flow statement
    � Prepare the statement of changes in working capital
    � Construct fund flow statement

    Introduction
    Every business establishment usually prepares the balance sheet at the end of the fiscal year
    which highlights the financial position of the yester years It is subject to change in the volume
    of the business not only illustrates the financial structure but also expresses the value of the
    applications in the liabilities side and assets side respectively. Normally, Balance sheet reveals
    the status of the firm only at the end of the year, not at the beginning of the year. It never discloses
    the changes in between the value position of the firm at two different time periods/dates. The
    method of portraying the changes on the volume of financial position is the analysis of fund flow
    statement.

    5.1 Meaning of Fund Flow Statement

    In a narrow sense, the term fund means cash, and the fund flow statement depicts the cash receipts
    and cash disbursements/payments. It highlights the changes in the cash receipts and payments as
    a cash flow statement in addition to the cash balances i.e. opening cash balance and closing cash
    balance. Contrary to the earlier, the fund means working capital, i.e. the differences between the
    current assets and current liabilities.

    The term flow denotes the change. Flow of funds means the change in funds or in working
    capital. The change on the working capital leads to the net changes taken place on the working
    capital, may lead to increase or decrease the volume of working capital. Some other transactions
    register neither an increase nor decrease in the volume of working capital.

    According to Foulke, “A statement of source and application of funds is a technical device


    designed to analyse the changes to the financial condition of a business enterprise in between
    two dates.”

    Jawahar Science College, Block-14, Neyveli. Page 1 of 3


    Management Accounting (BBA32) UNIT-4

    Various facets of fund flow statement are as follows:

    1. Statement of sources and application of funds


    2. Statement changes in financial position
    3. Analysis of working capital changes and
    4. Movement of funds statement
    5. Depreciation charged on assets
    6. Appropriation of profits to reserves
    7. Payment of interim dividends
    8. Payment and appropriations in relation to provisions for taxation/dividends where they are
    treated as non-current liabilities.

    Fund flow statement has following objectives:

    1. It pinpoints the mobilization of resources and the further utilization of resources.


    2. It highlights the financing of the general expansion of the business fi rms.
    3. It exemplifies the utilization of debt finance in the structure of financing.
    4. It portrays the relationship between the financing, investments, liquidity and dividend
    Decision of the firm during the given point of time.

    Steps in the Preparation of Fund Flow Statement:

    1. First and foremost step is to prepare the statement of changes in working capital, i.e. to identify
    the flow of fund/movement of fund through the detection of changes in the volume of working
    capital.
    2. Second step is the preparation of Non-current A/c items-Changes in the volume of Non-current
    A/c have to be prepared only in order to quantify the flow fund, i.e. either sources or application
    of fund.
    3. Third step is the preparation Adjusted Profit & Loss A/c, which already elaborately discussed
    in the early part of the unit.
    4. Last step is the preparation of fund flow statement.

    Jawahar Science College, Block-14, Neyveli. Page 2 of 3


    Management Accounting (BBA32) UNIT-4

    Preparation of Statement of Changes in Working Capital

    The ultimate purpose of preparing the schedule of changes in the working capital illustrates the
    changes in the volume of net working capital which envisages either sources or application of
    fund. The schedule of changes is focused as follows:

    Increase in Current Assets Increase in Working Capital


    Decrease in Current Assets Decrease in Working Capital
    Increase in Current Liabilities Decrease in Working Capital
    Decrease in Current Liabilities Increase in Working Capital

    Schedule of changes in working capital


    Or
    Statement of changes in working capitla

    Jawahar Science College, Block-14, Neyveli. Page 3 of 3

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