Fund Flow Statement

Updated on January 3, 2024
Article byWallstreetmojo Team
Edited byAshish Kumar Srivastav
Reviewed byDheeraj Vaidya, CFA, FRM

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. read more.

Key Takeaways

  • 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 –

Fund Flow Statement

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For eg:
Source: Fund Flow Statement (wallstreetmojo.com)

  1. Statement showing changes in working capital.
  2. 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.read more.
  3. Statement of fund flow.

Fund Flow Statement Video Explanation

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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

Particulars31.03.2015 (in US $)31.03.2016 (in US $)Increase (in US $)Decrease (in US $)
Current Assets –
Accounts ReceivableAccounts ReceivableAccounts receivables is the money owed to a business by clients for which the business has given services or delivered a product but has not yet collected payment. They are categorized as current assets on the balance sheet as the payments expected within a year. read more110,00070,00040,000
Cash & Bank65,00080,00015,000
Bills Receivable46,00032,00014,000
Prepaid expensesPrepaid ExpensesPrepaid expenses refer to advance payments made by a firm whose benefits are acquired in the future. Payment for the goods is made in the current accounting period, but the delivery is received in the upcoming accounting period.read more13,00016,0003,000
Total Current Assets (A)Total Current Assets (A)Current assets refer to those short-term assets which can be efficiently utilized for business operations, sold for immediate cash or liquidated within a year. It comprises inventory, cash, cash equivalents, marketable securities, accounts receivable, etc.read more354,000348,000  
Current LiabilitiesCurrent LiabilitiesCurrent Liabilities are the payables which are likely to settled within twelve months of reporting. They're usually salaries payable, expense payable, short term loans etc.read more    
Accounts PayableAccounts PayableAccounts payable is the amount due by a business to its suppliers or vendors for the purchase of products or services. It is categorized as current liabilities on the balance sheet and must be satisfied within an accounting period.read more45,00060,000       –15,000
Bills Payable30,00025,0005,000
Outstanding expenses11,00012,0001,000
Total Current Liabilities (B)86,00097,000  
Net Working Capital (A – B)268,000251,000  
Net Decrease in Working Capital17,00017,000

#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. read more, 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 operationsAmount (in US$)Amount (in US$)
Profit & Loss A/C as on 31.03.2016 250,000
Depreciation on Plant13,000
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.read more11,000
Preliminary expenses are written off5,000
Loss on the sale of fixed assets4,000
Amount transferred to Reserve17,000
Proposed dividend15,000
Provision for income tax32,000
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

ParticularsAmount (in US$)Amount (in US$)
Sources of Funds  
Funds from operation (ref: the second statement)198,000
Sale of Fixed Assets50,000
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.read more for preference shareholders100,000
Total Sources (A)348,000
Applications of Funds
Purchase of Plant108,000
Purchase of Buildings42,000
Payment of taxes100,000
Payment of dividend65,000 
Redemption of Preference Shares50,000 
Total Application (B) 365,000
Net Decrease in Working Capital (A – B) 17,000

Frequently Asked Questions (FAQs)

1. What are the limitations of the fund flow statement?

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.

2. How do fund flow statements differ from cash flow statements?

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.

3. What is the difference between fund flow and income statements?

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 –

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