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 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.

Fund Flow Statement Example

It has three separate statements –

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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.

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

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 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 more	110,000	70,000	–	40,000
Cash & Bank	65,000	80,000	15,000	–
Bills Receivable	46,000	32,000	–	14,000
Prepaid expensesPrepaid ExpensesPrepaid expenses are expenses for which the company paid in advance in an accounting period but which were not used in the same accounting period and have yet to be recorded in the company's books of accounts.read more	13,000	16,000	3,000	–
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 more	354,000	348,000
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 more	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 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 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 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 more	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 31^st 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 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 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

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