BANKING

Various Sources of Bank Funds

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The sources of bank funds are divided into two categories:

1. Internal sources and

2. External Sources

Internal sources of bank funds

Cash from operations is the main internal source. The Net Profit for this purpose
will have to be adjusted for non-cash items, such as:

1. Depreciation: Depreciation does not result in outflow of cash and, therefore,

net profit will have to be increased by the amount of depreciation or
development rebate charged in order to find out the real Chas generated
from operations.
SHA RE S
Follow Share
 2. Amortization of intangible assets: The amount written off should, therefore,
be added back to profits to find out the cash from operations.
3. Gains from sale of fixed assets: Since sale of fixed assets is taken as a
separate source of fund, it should be deducted from net profit.
4. Interests on long-term loans: Since such interest is to be shown as separate
source o cash, it should be added back to net profit.

External sources of bank funds

There are number of external sources of funds. Funds may be secured either by
an increase in liabilities or a decrease in assets as explained below:

1. Increase in Share capital: The amounts to be raised by the issue of new

shares or by calling the unpaid amount on the already issued shares are to
be shown separately for equity shares and preference shares.
2. Increase in Long-term Borrowing: Long-term borrowing such as issue of
debenture, loans from different banks are sources of cash. They should be
shown separately.
3. Increase in Deferred Payment on Plant and Machinery: Plant and machinery
may be purchased on deferred payment basis. The amount of such
arrangement should, therefore, be shown as a source of funds during the
concerned period.
4. Sale of fixed assets, investment, etc.: It results in generation of cash and,
therefore, is a source of cash.
5. Increase in other current liabilities: Increase in other current liabilities, such
as creditors, bills payable, outstanding expenses show that cash to the
extent of increase in these liabilities has not gone out of the business though
taken into account while finding out cash from operations. Such increase,
therefore, has to be taken as a separate source of cash.
6. Decrease in current assets: Decrease in current assets such as debtors, bills
receivable etc., show that cash has been realized to that extent and,
therefore, it is shown as a separate source of cash.

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