Fund Flow Statement

Accounting Tutorials

What is Fund Flow Statement?

If a company needs to report its changes in net working capital, the company prepares a fund flow statement. Fund flow statement isn’t a financial statement; rather it typically compares the sources of funds and the application of funds.

Uses of Fund Flow Statement

Before going into the example, first, let’s talk about why fund flow statement is prepared.

Firstly, through fund flow statement a company can compare between two balance sheets and can see the differences between them.
Secondly, fund flow statement helps a company see through where their money has been spent (i.e. application of funds) and from where they have received the money (i.e. the sources).
Thirdly, fund flow statement helps a company see how much money it has received from long-term funds raised by issues of shares, debentures, and sale of non-current assets and how much funds are generated only from operations.

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

Fund Flow Statement Example & Format

Fund flow statement has three separate statements –

Statement showing changes in working capital.
Statement showing funds from operations.
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 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

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#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 do 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 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 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 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