Slide 2:
Why we prepare fund flow statement?
The balance sheet and income statement are the traditional basic financial statement of a business enterprise. A serious limitation of these statements is that they do not provide information regarding changes in the firm’s financial position during a particular period of time. They fail to answer following question
Does the firm possess adequate working capital?
How much funds have been generated from operations?
Why did the firm not pay dividend in spite of adequate profit?
Slide 3:
MEANING OF FUND
The term fund has a variety of meaning such as cash fund, capital fund and working capital fund.
1.Cash fund :–
In a narrow sense, fund means only cash. ‘Cash flow statement’ portrays net effect of the various business transactions on cash into account receipts & disbursement of cash.
This concept of preparing fund flow statement is not accepted, as there are many such transactions which do not affect cash but represent the flow of fund .
for example: purchase of furniture on credit does not affect cash but there is flow of fund.
2. Capital fund: –
Here fund means all financial resources used in the business, whether in the form of men, money, material, machine & others.
3.Net working capital :–
Net working capital means difference between current asset and current liabilities .funds generally refers to cash or cash equivalent or to working capital.
Slide 4:
In the above figure the dotted line displays there will be no flow of fund & the dark line displays the flow of fund.
Slide 5:
Preparation of Fund Flow Statement
The changes which occurred in the current accounts as a result flow of fund are reflected in a statement known as ‘schedule of changes in working capital’ .
The similar changes in non current accounts are shown in ‘Fund Flow Statement’.
Therefore, following two statements under this techniques .
1. Statement or Schedule of Changes in Working Capital.
2. Statement of Sources and Uses of Funds or Funds Flow Statement.
Schedule of Changes in Working Capital:-
It discloses the changes in individual item of current asset & current liabilities between two period & there effect on working capital. Working capital will increase when there is an increase in current asset and decrease in current liabilities, whereas, working capital will decrease when there is a decrease in current asset & increase in current liabilities.
Net increase in working capital is treated as use of funds & the net decrease in working capital is treated as source of funds.
Slide 6:
Statement or Schedule of Changes in Working Capital.
Fund Flow Statement :
Fund Flow Statement
Profit & loss Adjustment a\c :
Profit & loss Adjustment a\c
THANKS :
THANKS