Fund flow statement

·       The balance sheet gives a static view of the resources(liabilities) and the uses(assets) to which resources have been put at a certain point of time. It does not disclose the causes for changes in the assets and liabilities between two different points of time.

·       The funds flow statement is a statement which shows the movement of funds and is a report of the financial operations of the business undertaking. It indicates various means by which funds were obtained during a particular period and the ways in which these funds were employed. In simple words, it is a statement of sources and application of funds.

·       Also known as Statement of changes in financial position, summary of financial operations, where come in and where gone out statement.

·       Funds: Funds means working capital i.e., the excess of current assets over current liabilities.

·       If the effect of transaction results in the increase of funds, it is called source of funds and if it results in the decrease of funds, it is known as an application of funds.

·       Rule: The flow of funds occurs when a transaction changes on the one hand a non- current account and on the other hand a current account and vice-versa.

Current Liabilities	Current Assets
1.    Bills Payable 2.    Sundry Creditors or Accounts Payable 3.    Accrued or Outstanding Expenses 4.    Dividends Payable 5.    Bank Overdraft 6.    Short-term loans advances & deposits	1.    Cash in band 2.    Cash at bank 3.    Bills Receivable 4.    Sundry Debtors or Accounts Receivable 5.    Short-term loans & advances
7.    Provision against Current Assets 8.    Provision for taxation, if it does not amount to appropriation of profits 9.    Proposed Dividend (May be a current or a Non- current liability)	6.    Temporary or Marketable Investments 7.    Inventories or stocks 8.    Prepaid Expenses 9.    Accrued Incomes
Non-Current Liabilities	Non-Current Assets
1.    Equity share capital. 2.    Preference share capital 3.    Debentures. 4.    Long term loans 5.    Share premium account. 6.    Profit and loss account 7.    Capital reserve 8.    Provision for depreciation against fixed assets. 9.    Appropriation of Profits	1.    Goodwill 2.    Land 3.    Building 4.    Plant and Machinery 5.    Furniture and fittings 6.    Trade marks 7.    Patent rates 8.    Long term investment 9.    Debit balance of profit on loss account 10.  Discount on issue of shares, debentures 11.    Preliminary expenses

·       Example of transactions which result in flow of funds: Issue of shares for cash, issue of debentures for cash, raising of long term loans, sale of fixed assets on cash or credit, sale of trade investments, redemption of preference shares, redemption of debentures, purchase of fixed assets on cash or credit, purchase of long term investments, payment of bonus in cash, issue of shares against purchase of stock-in-trade.

Funds Flow Statement	Income Statement
Highlights changes in financing position and the various means by which funds were obtained and employed. Complementary to income statement. Prepared from income statement.   Both capital and revenue items are considered.   No prescribed format.	Does not reveal the inflows and outflows of funds but depicts the items of expenses and income, arriving at a figure of profit or loss. Not prepared from funds flow statement. Only revenue items are considered. Prepared in a prescribed format.
Funds Flow Statement	Balance Sheet
Statement of changes in financial position. Dynamic in nature. Shows sources and uses of funds in a particular period of time. Tool of management for financial analysis and helps in decision making.	Statement of financial position on a particular date. Static in nature. Depicts assets and liabilities at a particular point of time. Not of much help to management in decision making.

·       Preparation of Funds flow statement: Prepared by comparing two balance sheets. It consists of two parts:

o   Statement or Schedule of changes in working capital

o   Statement of Sources and Application of Funds

·       Statement of Changes in Working capital: Working Capital = Current Assets – Current Liabilities.

o   Increase in WC: Increase in Current Assets or Decrease in Current Liabilities

o   Decrease in WC: Increase in Current Liabilities in Decrease in Current Assets