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Home » Accounting Tutorials » Cash Flow Statement Tutorials » Fund Flow Statement

Fund Flow Statement

What is the Fund Flow Statement?

Fund flow statement is a statement that compares the two balance sheets by analyzing the sources of funds (debt and equity capital) and the application of funds (assets) and its reasons for any differences. It helps the company see through where their money has been spent and from where they have received the money (long-term funds raised by issues of shares, debentures, and sale of non-current assets).

Now, we will look at the format of fund flow statement.

Fund Flow Statement Example

Fund Flow Statement

It has three separate statements –

  1. Statement showing changes in working capital.
  2. Funds from operations.
  3. Statement of fund flow.

So, we will start with the first one.

#1 – Statement showing changes in working capital

In this statement, you need to effect the changes in working capital. Working capital equals current assets minus current liabilities. We will see the format and example of how it is done.

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Statement showing changes in working capital

Particulars 31.03.2015 (in US $) 31.03.2016 (in US $) Increase (in US $) Decrease (in US $)
Current Assets –
Inventories 120,000 150,000 30,000 –
Accounts Receivable 110,000 70,000 – 40,000
Cash & Bank 65,000 80,000 15,000 –
Bills Receivable 46,000 32,000 – 14,000
Prepaid expenses 13,000 16,000 3,000 –
Total Current Assets (A) 354,000 348,000    
Current Liabilities –        
Accounts Payable 45,000 60,000        – 15,000
Bills Payable 30,000 25,000 5,000 –
Outstanding expenses 11,000 12,000 – 1,000
Total Current Liabilities (B) 86,000 97,000    
Net Working Capital (A – B) 268,000 251,000    
Net Decrease in Working Capital – 17,000 17,000 –
Total 268,000 268,000 70,000 70,000

 

#2 – Statement showing funds from operations

In this type of fund flow statement, we will take into account the current year’s profit/loss and then make some adjustments (adding back depreciation, loss on sales of fixed assets, etc.) and then deduct the profit/loss of the previous year.

Let’s have a look –

Statement showing funds from operations

Funds from operations Amount (in US$) Amount (in US$)
Profit & Loss A/C as on 31.03.2016   250,000
Add:
Depreciation on Plant 13,000
Depreciation on Buildings 11,000
Preliminary expenses are written off 5,000
Loss on the sale of fixed assets 4,000
Amount transferred to Reserve 17,000
Proposed dividend 15,000
Provision for income tax 32,000
  98,000
  348,000
Less: Profit & Loss A/C as on 31.03.2015   (150,000)
Funds from Operations   198,000

This statement can be alternatively prepared as “Adjusted Profit & Loss A/C,” where you can take all the working notes into account.

Now, let’s talk about the next statement.

#3 – Statement of Fund Flow

This is the final statement of the entire fund flow.

And we will take the above statements into account to see the effect in this statement. One thing you need to keep in mind is that when the uses of funds would be deducted from the sources, it should match the net increase/decrease in working capital.

Let’s get started.

Statement of Fund Flow at the year ended 31st March 2016

Particulars Amount (in US$) Amount (in US$)
Sources of Funds    
Funds from operation (ref: the second statement) 198,000
Sale of Fixed Assets 50,000
Issue of new shares for preference shareholders 100,000
Total Sources (A) 348,000
Applications of Funds
Purchase of Plant 108,000
Purchase of Buildings 42,000
Payment of taxes 100,000
Payment of dividend 65,000  
Redemption of Preference Shares 50,000  
Total Application (B)   365,000
Net Decrease in Working Capital (A – B)   17,000

Fund Flow Statement Video

Recommended Articles

This has been a guide to the Fund Flow statement and its meaning. Here we discuss the fund flow statement along with practical examples with explanation. You may also have a look at the following articles to learn more about accounting –

  • Bond Fund Definition
  • Statement of Operations
  • Income Funds
  • Compare – Index Funds vs Mutual Funds
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