FUND FLOW STATEMENT

Scientific methods of preparation of Fund Flow Statement

FORMAT OF SCHEDULE OF CHANGES IN WORKING CAPITAL

Funds from operations

• Direct method• Indirect method

Direct method

Funds from operations = Funds from operating revenue less funds for operating expenses

Indirect Method

Profit & Loss Adjustment Account

Profit & Loss Adjustment Account

To Net Profit ( given ) **By Non- Cash income

To Non - Cash Expenses Revaluation of assets **

Depreciation ** Revaluation of investments **

Written off entries **

To Loss on sale of assets **By Profits on sale of assets **

To Bad debts **By Dividend received

To Tax **

To Dividends **

To Transfer to reserves **By Funds from Operations **

** **

Statement of Adjustment

• Net Profit as per Profit & Loss Account **

Add: Non- Cash and non – operating expenses **

Less :Non-cash and non- operating income **

Funds from operations **

Format of Fund Flow Statement

Sources / Inflow Rs

Applications/Outflow Rs

Funds from Operations ** Funds lost in operations **

Sale of fixed assets ** Purchase of fixed assets **

Sale of Investments ** Purchase of investments **

Issue of shares ** Redemption of preference shares

**

Issue of debenture ** Redemption of debenture **

Loan taken ** Loan repaid **

Dividend Received ** Dividend paid **

Non-Operating income ** Non – operating expenses **

Decrease in working capital ** Increase in working capital **

** **

Need for fund flow statement

1. Shortcomings in Balance Sheet

2. Shortcomings in Profit & Loss Account

Importance of Fund Flow Statement

1. Gives information about amount of working capital and changes in the amount of working capital.

2. It analyses Balance sheet to reveal the financing & investing activities.

3. It analyses the Profit & Loss Account to reveal the effect of business activities of the concern on the flow of funds.

4. It is a tool for planning future activities of business.