Fund Flow Statement Analysis for Financial Management

CLASS CLASS BBA first year (SECOND SEMESTER) BBA first year (SECOND SEMESTER) SUBJECT SUBJECT Analysis of financial statements Analysis of financial statements TOPIC TOPIC - - FUND FLOW STATEMENT FUND FLOW STATEMENT PREPARED BY PREPARED BY- - Ms. KARUNA SACHDEVA Ms. KARUNA SACHDEVA (ASSISTANT PROFESSOR) (ASSISTANT PROFESSOR) DEPARTMENT OF COMMERCE AND MANAGEMENT DEPARTMENT OF COMMERCE AND MANAGEMENT I.B. (PG) COLLEGE , PANIPAT I.B. (PG) COLLEGE , PANIPAT (AFFILIATED TO KURUKSHETRA UNIVERSITY, (AFFILIATED TO KURUKSHETRA UNIVERSITY, KURUKSHETRA) KURUKSHETRA)

INTRODUCTION: INTRODUCTION: The basic financial statements , i.e. the balance sheet and profit and loss account reveal the net effect of the various transactions on the operational and financial position of the company. But their usefulness is limited for analysis and planning purpose . There are many transactions that take place in an undertaking and which do not operate through profit and loss account. Thus, another statement has to be prepared to show the change in asset and liabilities from the end of one period to the end of another period of time. The statement is called FUND FLOW STATEMENT .

MEANING OF FUNDS: MEANING OF FUNDS: The word fund refers to a sum of money, which is used to finance the firm s day to day operations and acquire assets for the business. MEANING OF FLOW: MEANING OF FLOW: The flow of funds represents the movement of funds, i.e. the change in economic resources, from one asset or liability to another.

MEANING OF FUND FLOW STATEMENT: MEANING OF FUND FLOW STATEMENT: Funds flow statement is a statement which discloses the analytical information about the different sources of a fund and the application of the same in an accounting cycle. It gives a clear picture about the movement of funds between the opening and closing dates of the Balance Sheet. It is also called the Statement of Sources and Applications of Funds, Movement of Funds Statement; Where Got Where Gone Statement: Inflow and Outflow of Fund Statement, etc.

OBJECTS OR USES OR Importance OF FUND FLOW STATEMENT: OBJECTS OR USES OR Importance OF FUND FLOW STATEMENT: To provide more reliable figures of profit and loss of the business. To provide help in proper management of working capital. To enable the firm to know whether the funds have been properly used or not. To provide help in financial analysis. To provide help the firm in borrowing operations. To provide help in preparation of budget for the next period.

LIMITATIONS OF FUND FLOW STATEMENT: LIMITATIONS OF FUND FLOW STATEMENT: The accuracy and reliability of funds flow statement is fully depending upon the financial statements. It is not a substitute of profit and loss account and balance sheet. It provides only additional information. The current year funds flow statement is used for current year only and not useful for future operation and decision making purpose also. When both the aspects of a transaction are current, they are not considered. When both the aspects of a transaction are non-current, even then they are not included in this statement. It is not an ideal tool for financial analysis.

Difference between fund flow statement and cash flow statement Difference between fund flow statement and cash flow statement BASIS OF DIFFERENCE S NO. FUND FLOW STATEMENT CASH FLOW STATEMENT 1. Basis of Analysis Funds flow statement is based on broader concept i.e. working capital. Cash flow statement is based on narrow concept i.e. cash, which is only one of the elements of working capital. 2. Source Funds flow statement tells about the various sources from where the funds generated with various uses to which they are put. Cash flow statement stars with the opening balance of cash and reaches to the closing balance of cash by proceeding through sources and uses. 3. Usage Funds flow statement is more useful in assessing the long-range financial strategy. Cash understanding the short-term phenomena affecting the liquidity of the business. flow statement is useful in 4. Schedule of Changes in Working Capital In funds flow statement changes in current assets and current liabilities through the schedule of changes in working capital. In cash flow statement changes in current assets and current liabilities are shown in the cash flow statement itself. are shown 5. End Result Funds flow statement shows the causes of changes in net working capital. Cash flow statement shows the causes the changes in cash. 6. Principle of Accounting Funds flow statement is in alignment with the accrual basis of accounting. In cash flow statement data obtained on accrual basis are converted into cash basis.

FUND FLOW STATEMENT INCLUDES: FUND FLOW STATEMENT INCLUDES: Schedule for changes in working capital Fund from operations Fund flow statement