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The funds statement was also known as a statement of funds flow or a statement of
sources and applications of funds This statement was deemed to be necessary as the balance sheet and income statement did not present a complete picture of an entitys economic activities The statement was seen as necessary to summarise investing and financing activities
The term of Funds Flow has made up with the two words Funds and Flow of funds. Let us first we understand these meaning and then we see how funds flow statement is prepared.
1.CASH -
In narrow sense, the term fund is used to mean only the cash and bank balance.
2.Working Capital The term Fund is used to mean working capital i.e. the excess of current assets over current liabilities. Therefore, in this sense, fund flow statement includes all the transactions affecting current assets and current liabilities.
2.CURRENT LIABILITIES These liabilities are payable within a year and out of current assets. The values of these liabilities generally changes within one year. For example -:creditors, bills payable , B/O
3.NON-CURRENT ASSETS
Those assets which are obtained in business for use over a long period of time for earning purpose are called non-current assets. For example -:goodwill,p&m,l&b,
4.CURRENT ASSETS
These assets are equal to cash or reasonably expected to be realized in cash or sold or consumed within one year or during the normal operating cycle of the business are called current assets. For example, debtors, bills receivable ,cash ,stock
The Funds flow statement (FFS) is a financial statement which reveals the methods by which the business has been financed and how it has used its funds between the opening and closing Balance-Sheet dates. It studies from where the funds have been received and where the funds have been used.
preparation Useful to Bankers and Money Lenders Helpful in Comparative Study Knowledge of Managerial Policies Knowledge of Business Problems Dividend Policy
This statement is prepared from current assets and current liabilities in order to calculate the increase or decrease in working capital and is prepared in the Performa given as under.
Previous Current Changes Year Fig. Year Fig. in current Rs.(2008) Rs.(2009) assets and liabilities
Increase Decre -ase
Cash Debtors Stocks Bill Receivables Advance payment Accrued income Marketable Securities or Short-term Investment
Particulars
Current Liabilities :
Creditor Bills Payable Bank Overdraft Outstanding Expenses Short-term Loan etc. Increase or Decrease in Working Capital
Previous Current Changes Year Fig. Year Fig. in current Rs.(2008) Rs.(2009) assets and liabilities
Increase Decre -ase
This statement is usually prepared in T form. Left-hand side is for sources of funds and right-hand side for applications of funds. The items of sources and applications are given as follows:
Sources of Funds:
The following are the sources from which funds come: 1. Funds from operations 2. Income from investments 3. Issue of shares and debentures 4. Raising a loan 5. Sale of fixed assets and long-term investments 6. Receipt of interest on non-trade investment, dividend, refund of tax etc. 7. Decrease in working capital etc.
The following are the various purposes for which funds can be used: 1. Funds lost in operations 2. Repayment of long-term loans 3. Redemption of preference shares and debentures 4. Purchase of fixed assets 5. Purchase of long-term investments
6. Payment of cash dividends 7. Payment of taxes 8. Drawing in case of proprietary or partnership business 9. Increase in working capital etc.
Net Profit for Current Year Add : Non fund items Depreciation Goodwill, Patents Preliminary Expenses Written off LESS : Non-fund Items and Nontrading Income ,already Credited to P & L A/c. Dividend Received Profit on sale
Funds from operations
To Depreciation To Goodwill Written off To preliminary Expenses written off To Transfer to sinking fund To Loss on sale of fixed Assets To Closing Balance of P&L Appropriation A/c