Managerial accounting

FUND OR WORKING CAPITAL FLOW

Current or short term liabilities. Funds does not flow
Current assets

Fund flows

Fund flows
funds flows

Long term liabilities

Funds does not flow

Fixed assets

NOTE: 1. 2. 3. 4. Increase in current asset will lead to increase in working capital. Decrease in current asset will lead to decrease in working capital. Increase in current liability will lead to decrease in working capital. Decrease in current liability will lead to increase in working capital.

FUND FLOW STATEMENT (FFS) Fund flow statement is a statement prepared to indicate the increase in cash resources and the utilization of such resources of business during the accounting period.

OBJECTIVES OF FUND FLOW STATEMENT 1. To provide information regarding financing and investing activities of the business. 2. To disclose the changes in the working capital between two periods. 3. To disclose the sources of fund which have been procured during a period. 4. To disclose the uses/applications of fund on which the sources of fund have been put.

IMPORTANCE OF FUND FLOW STATEMENT

1. 2. 3. 4. 5. 6. 7.

Analysis of financial position. Determination of financial consequences of business activities. Comparative study of financial statements. Helpful in securing bank loans. Helpful in allocation of resources. Planning for working capital. Helpful in managerial decisions.

CASH FLOW STATEMENT It is the cash and cash equivalents are the basis of cash flow statement. It is statement which indicates the changes of cash during an accounting period. It is all about the inflows and outflows of cash during the year.

OBJECTIVES AND IMPORTANCE OF CFS 1. 2. 3. 4. 5. 6. 7. 8. Knowledge of cash position. Knowledge of cash inflow and cash requirements. Knowledge of short-term solvency. Help in framing the financial policies. Helpful in dividend policy. Helpful in cash budget. Useful for external investors. Study of sources and uses of cash various activities.

LIMITATIONS OF CFS 1. 2. 3. 4. 5. Accrual concept of accounting is ignored. It is not a complete substitute of income statement. It is not a substitute of fund flow statement. Non-cash transactions are ignored in CFS. CFS presents the misleading comparision. CLASSFICATION OF CASH FLOW 1. Cash flow from operating activities.

CASH FLOWS

CASH INFLOWS

CASH OUTFLOWS
Receipts from royalties fees commission & others

Cash sales

Receipts from debtors

Refund of tax

Receipts from future contracts

Cash purchases

Payment or salaries

Payment of tax

Payments of contracts

Payments of creditors

2. CASH FLOW FROM INVESTING ACTIVITY

CASH FLOWS

Cash inflows

Cash outflows

Disposal of fixed asset

Disposal of shares & warrants

Receipts or repayment of advances & loans

Receipts from future contracts

Purchases of fixed asset warrants

Purchase of shares, third parties

Advances & loans to contract

Payment to future

3. CASH FLOW FROM FINANCING ACTIVITY

CASH FLOWS

Cash inflows

Cash outflows

Issue of shares

Issue of debentures

Raising of long-term loans

Redemption of preference shares

Repayment of loan

Payment of interest

Payments of dividends & bonds