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 statementFormat Of Fund Flow StatementFund Flow Statement explains the changes in funds from one balance sheet to another. It is not a financial statement so an entity can follow any format that is easy to interpret. .
Table of contents
- Fund flow statements offer a concise overview of the inflow and outflow of funds within an organization during a specific period.
- Fund flow statements serve as a valuable tool for organizations to gain insights into their cash position, conduct a thorough financial performance analysis, and identify areas for potential financial management improvement.
- Fund flow statements hold significant importance for investors, creditors, and other stakeholders as they provide valuable information to assess an organization’s financial health and stability.
Fund Flow Statement Example
It has three separate statements –
- Statement showing changes in working capital.
- Funds from operationsFunds From OperationsFFO (Funds from Operations) is a term used to describe the cash flows generated by Real Estate Investment Trusts (REITs). It is calculated by deducting interest income and gains on asset sales from net income for the period and adding interest expense, depreciation, and losses on asset sales..
- Statement of fund flow.
Fund Flow Statement Video Explanation
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.
Statement showing changes in working capital
#2 – Statement showing funds from operations
In this type oIn this type of fund flow statement, we will take into account the current year’s profit/loss and then make some adjustments (adding back depreciationDepreciationDepreciation is a systematic allocation method used to account for the costs of any physical or tangible asset throughout its useful life. Its value indicates how much of an asset’s worth has been utilized. Depreciation enables companies to generate revenue from their assets while only charging a fraction of the cost of the asset in use each year. , 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
|Depreciation on Plant
|Depreciation on BuildingsDepreciation On BuildingsDepreciation of building refers to reducing the recorded cost of a building until the value of the structure either becomes zero or reaches its salvage value. In addition, it helps to map the revenue in the form of lease rental generated during the corresponding expenses.
|Preliminary expenses are written off
|Loss on the sale of fixed assets
|Amount transferred to Reserve
|Provision for income tax
|Less: Profit & Loss A/C as on 31.03.2015
|Funds from Operations
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
|Amount (in US$)
|Amount (in US$)
|Sources of Funds
|Funds from operation (ref: the second statement)
|Sale of Fixed Assets
|Issue of new sharesIssue Of New SharesShares Issued refers to the number of shares distributed by a company to its shareholders, who range from the general public and insiders to institutional investors. They are recorded as owner's equity on the Company's balance sheet. for preference shareholders
|Total Sources (A)
|Applications of Funds
|Purchase of Plant
|Purchase of Buildings
|Payment of taxes
|Payment of dividend
|Redemption of Preference Shares
|Total Application (B)
|Net Decrease in Working Capital (A – B)
Frequently Asked Questions (FAQs)
The limitations of a fund flow statement include the fact that it only provides information about changes in working capital and long-term funds and does not show the current financial position of a company. It also does not provide details about the timing or reasons for changes in funds and may not reflect the true liquidity position of a company.
Fund flow statements differ from cash flow statements in that fund flow statements focus on changes in working capital and long-term funds, while cash flow statements focus on changes in cash and cash equivalents. As a result, cash flow statements provide a more detailed and accurate picture of a company’s cash position and ability to meet short-term obligations. In contrast, fund flow statements provide information about changes in sources and uses of funds over a longer period.
The main difference between a fund flow statement and an income statement is that a fund flow statement focuses on changes in working capital and long-term funds. In contrast, an income statement focuses on revenues, expenses, and profits or losses during a specific period.
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 –