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Fund Flow Statement:

Meaning of Fund Flow The financial statement of the business indicate assets, liabilities and capital on a particular date and also the profit or loss during a period. But it is possible that there is enough profit in the business and the financial position is also good and still there may be deficiency of cash or of working capital in business. If the management wants to find out as to where the cash is being utilized, financial statement cannot help. Therefore, a statement is prepared of the sources and applications of funds from where Working Capital comes and where it is utilized. This is called Fund Flow statement. Meaning of Fund In a popular and generally accepted sense the term fund is used to denote the excess of current assts over current liabilities : Working Capital = Current Assets Current Liabilities

Meaning of Flow of Fund Flow of funds means transmigration (coming and going) of funds. In other words, Flow of funds means change in Working capital, as in funds flow statement the words funds mean net working capital. Definition: According to R.N. Anthony, Fund Flow is a statement prepared to indicate the increase in cash resources and the utilization of such resources of a business during the accounting period. According to Smith Brown, Fund Flow is prepared in summary form to indicate changes occurring in items of financial condition between two different balance sheet dates. Coleman rightly states that, The fund statement is statement summarizing the significant financial change which have occurred between the beginning and the end of a companys accounting period.

Meaning 1. Money that is set aside for a particular purpose.

2. To provide money for paying off the interest or principal of (a debt). 3. To finance, using long-term debt or Capital. Synonyms 1. 2. 3. 4. Finance Support Back Furnish

Fund = Capital
We use the phrase "We need additional funds" to mean we need additional capital whether be it for acquiring assets, clearing liabilities or for meeting expenses. This indicates that Fund means Capital. All capital of the organisation whether owned or loaned is capable of being called Fund.

Fund is Capital freely available for use


A Fund by its nature would be capital kept aside with a purpose. The fund should be capable of being used for the specified purpose at any time. Fund, in the topic Funds Flow Analysis, is a general purpose fund. It represents capital resource that would be available to the organisation for general purposes. It would be capable of being used in any manner the organisation prefers without any restriction/hindrance.

Fund is Capital supported by Current Assets


Every rupee of a liability/capital is supported by a rupee of an asset. Every rupee of an asset is financed by a rupee of a liability. Consider a new business that has been started with a capital of Rs. 2,00,000 brought in cash. The organisation's Balance Sheet immediately after this first transaction would be: Balance Sheet of M/s ___ as on 31st December __ Liabilities Capital Amount 2,00,000 2,00,000 Assets Cash Amount 2,00,000 2,00,000

1. Liabilities supported by Assets : Capital is supported by cash 2. Assets financed by Liabilities : Cash is financed by Capital

The next day, Furniture worth Rs. 1,00,000 and Stock Worth Rs. 50,000 have been bought for cash. The Balance Sheet after these transaction would be : Balance Sheet of M/s ___ as on 31st December __ Liabilities Capital Amount 2,00,000 2,00,000 Assets Cash Furniture Stock Amount 50,000 1,00,000 50,000 2,00,000

1. Liabilities supported by Assets : Capital is supported by Cash, Furniture and Stock 2. Assets financed by Liabilities : Cash, Furniture and Stock are financed by Capital Capital/Cash is employed in purchasing Assets Since Cash used in purchasing Furniture was financed by Capital, we can say that Furniture is financed by Capital. Whereby, we say that capital is employed in purchasing furniture. On converting an asset into a new one, the liability that was being supported by the replaced asset would now be supported by the new asset. Therefore, on employing capital, the assets supporting capital change. Capital that can be employed To be able to employ capital for any purpose, the asset that is supporting it should be easily convertible. Fund is Capital supported by easily convertible Assets Fund is capital freely available for being used in any which way the organisation intends i.e. for long term or short term needs. To enable such usage, funds (capital that we call funds) should be supported not just by assets which are convertible but by assets that are easily convertible. Current Assets are easily convertible
Current
Meaning

1. Belonging to the present time. 2. Not overdue; occurring this period.


Synonyms

1. 2. 3. 4.

Present Existing Recent In Progress

Current Assets are assets that are capable of being liquidated in a time span of a year or less. They represent easily convertible assets. Fund is capital supported by easily convertible assets + Current Assets are easily convertible assets. Fund is capital supported by Current Assets

Funds exclude Current Liabilities


Current Liabilities Current liabilities are liabilities that are to be repaid/cleared within the near future (a short period of time). Current liabilities are considered to be supported by current assets as they are similar in nature i.e. both of them have a short life span (a year or less). Current liabilities have a charge on current assets. Fund is capital that is freely available for use for any purpose the organisation intends without any hindrance/restriction. All the capital that is supported by current assets cannot be said to be freely available for use without any hindrance. We do not consider Current liabilities to be representing capital that is freely available for use, since they are to be repaid within a short time span Therefore, capital supported by current assets excluding current liabilities would only be considered as fund.

Fund = Current Assets - Current Liabilities


Fund is freely available capital + Fund is capital supported by Current Assets + Fund is capital supported by current assets excluding current liabilities [Current assets in excess of those supporting current liabilities support funds.] Funds = Current Assets - Current Liabilities Fund = Working Capital Excess of Current Assets over Current Liabilities is Working Capital Working Capital = Current Assets - Current Liabilities.

Fund = Working Capital

What is Funds Flow?


Flow
Meaning i. ii. To move or run smoothly with unbroken continuity like in the case of a fluid. Something that resembles a flowing stream in moving continuously

Synonyms i. ii. iii. Stream Gush Course

Funds Flow
Fund being working capital, Funds flow indicates the flow of working capital between two points of time. It involves information relating to the various transformations undergone by working capital (i.e. the changes that have taken place in working capital) during the period involved between the two points of time. Every change in working capital is associated with (or is on account of) a flow either an inflow or an outflow. Thus, funds flow involves information relating to the inflows and outflows that resulted in a change in working capital between the two points of time.

When do we say that there is a flow of fund?


Fund (Working Capital) in an Organisation is like water in a reservoir. The Fund is analogous to water and the reservoir to the organisation.

There is a change whenever there is a flow


There would be a change in fund (working capital) whenever there is a flow (in/out) of fund.
 

An inflow would result in an increase and An outflow would result in a decrease.

There is a flow whenever there is a change


A change in fund (working capital) in the organisation is an indication of flow of fund.

 

An increase would indicate an inflow and A decrease would indicate an outflow.

Hidden/Masked flows
When there is an inflow followed by an outflow of the same magnitude, there may not be a change in fund (working capital). An inflow would result in an increase in fund which would be set off by an outflow resulting in a decrease. Since the magnitude is the same, after the two transactions, the fund seems to be unchanged. In such situations, to notice the change, we will have to break down the transactions into two instead of viewing them in total.

The funds flow statement is a report on the movement of funds or working capital. It explains how working capital is raised and used during an accounting period. The term fund refers to net working capital. Funds flow statement is a statement of sources and application of funds designed to analyze the changes in the financial condition of a business enterprise between two dates. It shows how the general expansion of the business has been financed. It indicates the relationship between profits from operations, distribution of dividend and raising of new capital or term loans.

It is continuous process. The study and control of this funds-flow process (i.e., the uses and

sources of funds) is the main objective of financial management to assess the soundness an the solvency of the enterprise. The funds-flow-statement is a report on financial operations changes, flow or movements during the period. It is a statement which shows the sources an application of funds or it shows how the activities of a business is financed in a particulate period. In other words, such a statement shows how the financial resources have been used during a particular period of time. It is, thus, a historical statement showing sources and application of funds between the two dates designed especially to analyse the changes in the financial conditions of an enterprise. In the words of Foulke, it isA statement of Sources and Application of Funds is a technical device designed to analyse the changes in the financial condition of a business enterprises between two dates. Funds Flow Statement is not an income statement . Income statement shows the items of income and expenditure of a particular period, but the Funds flow statement is an operating statement as it summaries the financial activities for a period of time. It covers all movements that involve an actual exchange of assets. Various titles are used for this statement such as 'Statement of sources and Application of Funds', 'Summary of Financial operations,' 'Changes in Financial Position', 'Fund received and Disbursed', 'Funds Generated and Expended', Changes in Working Capital, Statement of Fund' etc. Title of Funds Flow Statement has been modified from time to time. Really it is very difficult to find a short time for such statement which carries much to the readers regarding its contents an functions. A new interpretation of the term 'funds, has now been adopted as to include assets or financial resourceful which do not flow through the working capital accounts. It seems to be the most suitable meaning fort the term 'funds' but the most commonly used interpretation of the term 'funds' is 'working capital' Related Articles

Some of the topics covered under Funds Flow Statement are: 1.Meaning and objectives of Funds Flow Statement 2.Advantages and Limitations of Funds Flow Statement 3.Sources of Funds for Funds Flow Statement 4.Applications of Funds for Funds Flow Statement 5.Preparation of Statement of Changes in Working Capital 6.Preparation of Ledger accounts for non-current items 7.Preparation of Adjusted Profit and Loss account 8.Preparation of Statement of Funds from Operations 9.Preparation of Funds Flow Statement 10.Treatment of certain items in Funds Flow Statement

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