Fund Flow Statement

Fund flow statement is also known as the statement of  “Source And Application Of Funds.” Fund Flow Statement presents the movement of funds and it also helps management to understand the change in the structure of assets, liabilities and equity capital.

Meaning of Fund

Fund means working capital. If current assets of company is more than current liability of business, it is called working capital and working capital’s other name is Fund.

Fund = Working capital = Current assets – Current liability

Inflow of Funds

• Issue of Equity Share Capital

• Issue of Preference Share Capital

• Issue of Debentures/Long term Loans

• Premium on issue of shares/debentures

• Sale of Investments

• Sale of Fixed Assets

Outflow of Funds

• Redemption of Preference Share Capital

• Redemption of Debentures

• Repayment of Long term Loans

• Premium on redemption of preference shares/debentures

• Purchase of Investments/Fixed Assets

• Dividend Paid

• Taxes Paid

• Drawings by proprietor/partner

Features of funds flow statement are as under:

— Shows sources of funds during a specified period.

— Shows uses of that funds during a specified period.

— “funds” used here means working capital, i.e. the excess of current assets over current Liabilities.

— It is also known as

• Sources and Application of funds;

• statement of changes in financial position:

• sources and uses of funds:

• summary of financial operations:

• where got, where gone statement

STEPS FOR CALCULATION FUND FROM OPERATION

FIRST STEP

PREPARE STATEMENT OF CHANGES OF WORKING CAPITAL

It is necessary to make statement of changes of working capital, because net increase in working capital is use of fund while on the other hand net decrease in working capital is source of fund.

WORKING CAPITAL INCREASE/DECREASE WHEN

Increase working capital

• Increase in current assets

• Decrease in current liabilities

Decrease in working capital

• Decrease in current assets

• Increase in current liabilities

No change in working capital

• Realisation from debtors/Bills Receivable

• Payment to creditors/Bills Payable

• Goods sold on credit

• Goods purchased on credit

SECOND STEP

Ascertain the funds from operation

Funds from the operation may be ascertained from following two methods as under:

(i) In statement form

(ii) In account form

Fund from operation is needed for preparation of fund flow statement for SOURCE OF FUND SIDE. Fund from operation can be shown on application of fund side and when there is negative it is known as fund from operation. 

Operation means business activity and fund from operation means profit from business activity.

These online MCQ Mock tests and MCQ questions includes all main concepts of the chapter (Fund Flow Statement) in CS Executive Module I Cost and Management Accounting (MCQ based OMR) Exam.