File Name: cash flow and fund flow statement .zip
Let us make an in-depth study of the meaning, objectives, importance, limitations, general rules and preparation of fund flow statement. A fund flow statement is a statement in summary form that indicates changes in terms of financial position between two different balance sheet dates showing clearly the different sources from which funds are obtained and uses to which funds are put. It summarizes the financing and investing activities of the enterprise during an accounting period.
- Differences between Cash Flow Statement and Funds Flow Statement
- Fund Flow Statement Changes in Financial Position : (a) Fund Flow Statement (b) Cash Flow Statement
- Difference Between Cash Flow and Fund Flow Statement
Cash flow refers to the current format for reporting the inflows and outflows of cash , while funds flow refers to an outmoded format for reporting a subset of the same information.
Cash Flow statement shows the changes in the cash position Inflows and outflows of a firm. It is an analytical reconciliation statement which explains the reasons for the differences between the opening and closing cash balances over a period. The financial position of any company can be better understood with the help of a cash flow statement and fund flow statement, along with the Balance Sheet and Income statement. So, take a glance of the given article to understand the difference between cash flow and fund flow statement.
Differences between Cash Flow Statement and Funds Flow Statement
Management, Creditors and Investors etc. Based on these backgrounds, it is essential to analyse the movement of assets, liabilities, funds from operations and capital between the components of two year financial statements.
The analysis of financial statements helps to the management by providing additional information in a meaningful manner. These total resources of a concern are in the form of men, materials, money, plant and equipments and others.
In a broader meaning the word "Fund" refers to Working Capital. The Working Capital indicates the difference between current assets and current liabilities.
In a narrow sense the word "Fund" denotes cash or cash equivalents. Meaning of Flow of Funds The term "Flow of Funds" refers to changes or movement of funds or changes in working capital in the normal course of business transactions. The changes in working capital may be in the form of inflow of working capital or outflow of working capital.
In other words, any increase or decrease in working capital when the transactions takes place is called as "Flow of Funds. Similarly, if the components of working capital effects in decreasing the financial position it is treated as Outflow of Fund.
For example, if the fund raised by way of issue of shares will be taken as a source of fund or inflow of fund. This transaction results in increase of the financial position. Like this, the fund used for the purchase of machinery will be taken as application or use of fund or outflow of fund. Because it stands to reduce the fund position. Some transactions may not make any movement or changes in the fund position. Such transactions are involved within the business concern.
Like the transaction which involves both between current assets and current liabilities or between non-current assets and non-current liabilities and hence do not result in the flow of funds. For example, conversion of shares in to debenture. Such transaction involves between non-current account only and this activity does not effect in increase or decrease of the working capital position.
Statement of Changes in Financial Position It is a statement prepared on the basis of all financial resources, i. This statement is attempt to measure changes in both current and non-current accounts.
The changes in financial position may occur in deal with following transactions: a Involves between current assets and non-current assets fixed assets or permanent assets. And Non-Current Liabilities When the transaction involves between non-current account and between current account it is not movement of funds. For example, raw materials are purchased and the amount unused at the end of the trading period forms part of the current as stock on hand.
This class of asset include those of tangible and intangiable nature having a specific value and which are not consumed during the course of business and trade but provide the means for producing saleable goods or providing services. They consist of amount owing to creditors, bank loans due for repayment, proposed dividend and proposed tax for payment and expenses accrued due.
It is also called as Permanent Liabilities. Any amount owing by the business which are payable over a longer period time, i. Debenture, long-term loans and loans on mortgage etc. When it is made during the year it is not used for adjusting the net profit, it is advisable to treat the same as current liability. Any amount of tax paid during the year is to be treated as application of funds or non-current liability. Because it is used for adjusting the net profit made during the year.
And thus, it will not be used for adjusting the net profit made during the year. If it is treated as an appropriation, i. This statement is prepared on the basis of "Working Capital" concept of funds. Fund flow Statement helps to measure the different sources of funds and application of funds from transactions involved during the course of business.
Fund Flow Statement Importance or Uses of Fund Flow Statement Fund Flow Statements are prepared for financial analysis in order to meet the needs of people serving the following purposes: 1 It highlights the different sources and applications or uses of funds between the two accounting period.
Difference between Fund Flow Statement and Income Statement Fund Flow Statement Income Statement 1 It explains the different sources and uses of 1 It reveals the net profit or net loss in a funds during the particular period.
Thus, it is complementary to income statement. Trial Balance. Limitations of Fund Flow Statement Fund Flow Statement has suffered with the following limitations : I It is prepared on the basis of information related to historical in nature.
It ignores to project future operations. Preparation of Fund Flow Statement Fund flow analysis involves the following important three statements such as : I. Fund From Operations II. Fund Flow Statement. The operating profit revealed by Profit and Loss Account represents the excess of sales revenue over cost of goods sold. In the true sense, it does not reflect the exact flow of funds caused by business operations.
Because the revenue earned and expenses incurred are not in conformity with the flow of funds. For example, depreciation charges on fixed assets, write up of fixed assets or fictious assets, any appropriations etc. Because they have already been charged to such profits. Hence, fund from operation is prepared to find out exact inflow or outflow of funds from the regular operations on the basis of items which have readjusted to the current profit or loss.
The balancing amount of adjusted profit and loss account is described as fund from operations. The adjustments may be shown in the specimen proforma of profit and loss account as given below : Particulars Amount Rs. Amount Rs. Particulars Amount Rs. Before preparation of fund flow statement, it is essential to prepare first the schedule of changes in working capital and fund from operations.
Statement of changes in working capital is prepared on the basis of items in current assets and current liabilities of between two balance sheets. This statement helps to measure the movement or changes of working capital during a particular period. The working capital may be "Increase in working capital" or "Decrease in working capital. Similarly, a decrease in the amount of an item of current assets in the current year as compared to the previous year would represent decrease in working capital.
In the same way over all changes in working capital is calculated and presented in the schedule of changes in working capital. In Working Capital Total Increase Decrease Current Assets : Cash in Hand 15, 10, - 5, Cash at Bank 10, 8, - 2, Debtors 1,60, 2,00, 40, - Stock 77, 1,09, 32, - Bills Receivable 20, 30, 10, - Total A 2,82, 3,57, Current Liabilities : Creditors 55, 83, - 28, Bills Payable 20, 16, 4, - Total B 75, 99, Working Capital A - B 2,07, 2,58, Net Increase in Working Capital 51, - - 51, 2,58, 2,58, 86, 86, Illustration: 4 You are required to prepare a Schedule of changes in working capital from the following Balance sheet of Nancy Ltd.
Balance Sheet Liabilities Assets Rs. The statement of changes in working capital is prepared with the help of current assets and current liabilities. Similarly, fund from operation is prepared on the basis of profit and loss account to find out the exact movement of funds in different operations. After preparing schedule of changes in working capital and fund from operations, at the last stage a comprehensive fund flow statement can be prepared on the basis of component of non-current assets, non-current liabilities of balance sheet and relavent information.
In other words, this statement is prepared with the help of the changes in non-current assets and non-current liabilities of balance sheet. Payment of Tax; Payment of Dividend. Application of Funds Amount Rs. Balance sheet Liabilities Assets Rs. Application of Fund Rs. Balance Sheet liabilities Assets Rs. Application of Funds Rs. Fund From Operations 37, Purchase of Machinery 3.
Bills Payable 20, 22, Cash Balances 10, 7, Creditors 20, 22, Debtors 20, 20, Ramesh's Loan 25, - Bills Payable 10, 30, Loan from Kannan 40, 50, Stock 35, 25, Equity Share Capital 1,00, 1,00, Machinery 80, 55, Preference Share Capital 25, 53, Land 40, 50, Building 35, 60, 2,30, 2,47, 2,30, 2,47, Additional Information 1 During the year machine costing Rs. Particulars Amount Particulars Amount Rs.
The opening stock according to books 'was Rs. The stock on 31" December was correctly valued at cost. Net Profit Closing Balance 90, Add : Non-Fund and Non-operating items which already been debited to profit and loss Alc : Loss on sale of machinery 10, Loss on redemption of debenture 5, Depreciation provided 1,00, Preliminary expenses Rs.
Application of Funs Rs. Fixed Assets Account Cr. Debenture Account Cr. Accumulated Depreciation Account Cr. Prepare the fund flow statement for the year ended 31" December What is mean by Fund Flow Statement? Explain the Changes of Financial Position.
Fund Flow Statement Changes in Financial Position : (a) Fund Flow Statement (b) Cash Flow Statement
Even though Cash flow statement and Funds flow statement focus on the concept of fund, there are some differences between these two statements. They are discussed below. It is prepared on the basis of cash and cash equivalents. It is prepared on the basis of fund as working capital. Cash from operation is calculated.
A cash flow statement, when used in conjunction with other financial statements, provides information that enables its users to evaluate the changes in net assets.
Difference Between Cash Flow and Fund Flow Statement
The notion of funds is described by several accountants in different way. The term funds have different meaning according to interpretation of accountants and accounting approaches. Flow of fund means inward and outward movement of funds of an enterprise. Basically, funds denote to working capital and flow means movement and changes. In this regard, flow of funds encompasses movement in working capital items such as current assets and current liabilities.
Read this article to learn about the steps, rules and format required for preparing funds flow statement with schedule of changes in working capital. For each non-current account on the balance sheet, establish the increase or decrease in that account. Analyze the change to decide whether it is a source increase or use decrease of working capital. Be sure the total of all sources including those from operations minus the total of all uses equals the change found in working capital in Step 1. Changes in fixed non-current assets and fixed non-current liabilities affects working capital.
Content: Cash Flow Vs Fund Flow
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