Presentation On Fund Flow Statement
Presentation On Fund Flow Statement
Presentation On Fund Flow Statement
Presented By:
LOKESH KUMAR
PGDM-07003
Why we prepare fund flow statement?
The term fund has a variety of meaning such as cash fund, capital fund
and working capital fund.
1.Cash fund –In a narrow sense, fund means only cash. ‘Cash flow
statement’ portrays net effect of the various business transactions
on cash into account receipts & disbursement of cash.
This concept of preparing fund flow statement is not
accepted, as there are many such transactions which do
not affect cash but represent the flow of fund .
for example: purchase of furniture on credit does not affect cash
but there is flow of fund.
2. Capital fund –Here fund means all financial resources used in the
business, whether in the form of men, money, material, machine
& others.
3.Net working capital -Net working capital means difference
between current asset and current liabilities .funds generally
refers to cash or cash equivalent or to working capital.
MEANING OF FLOW
The term ‘flow’ refers to changes or transfer and
therefore the ‘flow of funds’ means transfer of economic
values from one asset to another, from one liability to
another, from one asset to liabilities or vice-versa or a
combination of these. So flow of fund refers to increase or
decrease in net working capital.
The increase or decrease in net working capital will take
place only when one account, out of two accounts to be
affected in a transaction ,is a current account i.e. current
asset or current liabilities and the other account is non
current account i.e. fixed asset or long term liability or
capital.
When a change in non current account is followed by a
change in another non current account, it does not amount
to flow of fund. It is because, in such case, neither the
working capital increase nor decrease.
For example
Machinery a/c Dr
To share capital a/c
(Machinery purchase in consideration of share)
In the above transaction both accounts are non
current accounts which do not at all affect current asset
and current liability. Therefore working capital will
remain unaffected i.e. there will be no flow of fund.
When changes in one current account results in a
changes in other current account ,it also does not affect
working capital i.e. there is no flow of funds.
For example
Cash a/c Dr
To debtor a/c
(Cash received from debtor)
It represents an increase of cash –a current asset account and decrease
of debtor again a current asset account .thus there will be no net changes
in the amount of working capital, although the composition of working
capital will be affected .
In the above figure the dotted line displays there will be no flow of fund &
the dark line displays the flow of fund.
Preparation of Fund Flow Statement
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.
Schedule of Changes in Working Capital
It discloses the changes in individual item of current asset & current
liabilities between two period & there effect on working capital.
Working capital will increase when there is an increase in current
asset and decrease in current liabilities, whereas, working capital
will decrease when there is a decrease in current asset & increase in
current liabilities.
Net increase in working capital is treated as use of funds & the net
decrease in working capital is treated as source of funds.
Statement or Schedule of Changes in Working Capital.
10000 10000
Profit & loss adjustment a\c
Particular Amount Particular Amount
21475 21475
Accumulative deprecation
Building Furniture
Particul Amo Particula Amoun Particular Amou Particula Amoun
nt t
r
ar unt r t
To By
To P/L a/c 3000 By balance 12000 1000
furniture balance 3200
To balance 9000 b/d a/c b/d
c/d To balance 2400 By P/L a/c 200
12000 12000 c/d
3400 3400
Furniture a\c
8000 8000