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Presented by Yogesh Nitin Sanjay Pranit Deepak Prashant

The funds statement was also known as a statement of funds flow or a statement of

sources and applications of funds This statement was deemed to be necessary as the balance sheet and income statement did not present a complete picture of an entitys economic activities The statement was seen as necessary to summarise investing and financing activities

The term of Funds Flow has made up with the two words Funds and Flow of funds. Let us first we understand these meaning and then we see how funds flow statement is prepared.

1.CASH -

In narrow sense, the term fund is used to mean only the cash and bank balance.

2.Working Capital The term Fund is used to mean working capital i.e. the excess of current assets over current liabilities. Therefore, in this sense, fund flow statement includes all the transactions affecting current assets and current liabilities.


The understanding the meaning of flow in funds, it is necessary to classify the balance sheet of a concern into four parts as shown below-


liabilities are not payable within a year and out of current assets. These liabilities are generally payable either in the long-period or at the close of the business. For example, share capital, debenture, long term loan, R&S etc

2.CURRENT LIABILITIES These liabilities are payable within a year and out of current assets. The values of these liabilities generally changes within one year. For example -:creditors, bills payable , B/O

Those assets which are obtained in business for use over a long period of time for earning purpose are called non-current assets. For example -:goodwill,p&m,l&b,

These assets are equal to cash or reasonably expected to be realized in cash or sold or consumed within one year or during the normal operating cycle of the business are called current assets. For example, debtors, bills receivable ,cash ,stock

The term Flow means changes incoming and outgoing.

When this term is used with funds, it means the changes taking place in funds during a certain period. Whenever there is change in the funds, it is presume that flow in funds has taken place. Transactions that bring working capital into the firm are sources of funds and on the contrary, if the working capital decreases, it is an application of funds.

The Funds flow statement (FFS) is a financial statement which reveals the methods by which the business has been financed and how it has used its funds between the opening and closing Balance-Sheet dates. It studies from where the funds have been received and where the funds have been used.

1. Financial Analysis and Control 2. Financial Planning and Budget 3. 4. 5. 6. 7.

preparation Useful to Bankers and Money Lenders Helpful in Comparative Study Knowledge of Managerial Policies Knowledge of Business Problems Dividend Policy





This statement is prepared from current assets and current liabilities in order to calculate the increase or decrease in working capital and is prepared in the Performa given as under.


Current Assets :

Previous Current Changes Year Fig. Year Fig. in current Rs.(2008) Rs.(2009) assets and liabilities
Increase Decre -ase

Cash Debtors Stocks Bill Receivables Advance payment Accrued income Marketable Securities or Short-term Investment

Current Liabilities :
Creditor Bills Payable Bank Overdraft Outstanding Expenses Short-term Loan etc. Increase or Decrease in Working Capital

Previous Current Changes Year Fig. Year Fig. in current Rs.(2008) Rs.(2009) assets and liabilities
Increase Decre -ase

This statement is usually prepared in T form. Left-hand side is for sources of funds and right-hand side for applications of funds. The items of sources and applications are given as follows:

Sources of Funds:
The following are the sources from which funds come: 1. Funds from operations 2. Income from investments 3. Issue of shares and debentures 4. Raising a loan 5. Sale of fixed assets and long-term investments 6. Receipt of interest on non-trade investment, dividend, refund of tax etc. 7. Decrease in working capital etc.

The following are the various purposes for which funds can be used: 1. Funds lost in operations 2. Repayment of long-term loans 3. Redemption of preference shares and debentures 4. Purchase of fixed assets 5. Purchase of long-term investments

6. Payment of cash dividends 7. Payment of taxes 8. Drawing in case of proprietary or partnership business 9. Increase in working capital etc.

It can be calculated in two forms :

Particulars Amount Rs. Amount Rs.

Net Profit for Current Year Add : Non fund items Depreciation Goodwill, Patents Preliminary Expenses Written off LESS : Non-fund Items and Nontrading Income ,already Credited to P & L A/c. Dividend Received Profit on sale
Funds from operations

To Depreciation To Goodwill Written off To preliminary Expenses written off To Transfer to sinking fund To Loss on sale of fixed Assets To Closing Balance of P&L Appropriation A/c

By opening Balance of P&L Appropriation A/c By Dividend Received

By Over provisions Written Back By Funds from operations (Balancing Figure)