FUNDS FLOW STATEMENT

Introduction
The basic financial statements. 1.0 . the balance sheet and profit and loss account or
income statement of business, reveal the net effect of the various transactions on the
operational and financial position of the company. The balance sheet gives a sunsmary of
the assets and liabilities of an undertaking at a particular point time. It reveals the
financial status of the company. The assets side of a balance sheet shows the deployment
of resources of an undertaking while the liabilities side indicates its obligations, i.e., the
manner in which test resources were obtained. The profit and loss account reflects the
results of the business operations for period of time It contains a summary of expenses
incurred and the revenue realised in an accounting period. these statements provide the
essential basic information on the financial activities of a business, but their bless is
limited for analysis and planning purposes. The balance sheet gives a static view of the
acs (liabilities) of a business and the uses (assets) to which these resources have been put
at a certain of time. It does not disclose the causes for changes in the assets and liabilities
between two different of time The profit and loss account, in a general way. indicates the
resources provided by operations there are many transactions that take place in an
undertaking and which do not operate through profit loss account. Thus. another
statement has to be prepared to show the change in the assets and liabilities the end of
one period of time to the end of another period of time. The statement is called a
Statement s in Financial Position or a Funds Flow Statement. The Funds. Flow Statement
is a statement which shows the movement of funds and is a report of financial operations
of the Mammy undertaking. it indicates various means by which funds were during a
particular period and the ways in which thew funds were employed in simple words, e
statement of sources and applications of funds.
MEANING AND CONCEPT OF FUNDS
The term 'funds' has been defined in a number of ways.
a) In a narrow sense, it means cash only and a funds flow statement prepared on this basis
is called flow statement. Such a statement enumerates net effects of the various business
transactions on cash ekes into account receipts and disbursements of cash.

(b) In a broader sense, the term 'funds' refers to money values in whatever form it may
exist loads' means all financial resources, used in business whether in the tom of men.
material, money. and others.
c) In a popular sense, the term 'funds', means working capital, i.e. the excess of current
liabilities. The working capital concept of funds has emerged due to the fact that total
resources are invested partly in fixed assets in the form of fixed. capital and partly kept in
form of liquid liquid form its working capital.
The narrower concept of 'funds', i.e. cash or working capital concept. fails to reveal the
changes financial resources of a business. Some significant items, such as purchase of
building in exchange re payment of bonus in the form of shares, which do nut directly
affect cash or working capital are envied from the analysis based on these concepts,
However, the concept of funds as working capital sea popular one and in this chapter we
shell generally refer to funds working capital and an la statement as a statement of
sources and application of funds.
MEANING AND CONCEPT OF 'FLOW OF FUNDS'
The term 'flow' means movement and includes both 'inflow' and 'outflow'. The term 'flow
of he transfer of economic values from one asset of equity to another. Flow of finds is
said to have fl place when any transaction makes changes in the amount of funds
available before happening of transaction. If the effect of transaction results in the
increase of funds, it is called a source of funds if it results in the decrease of funds, it is
known as en application of finds Further, in case the trot does not change funds, it is said
to have not resulted in the flow-of funds. According to the working concept of funds. theterm 'flow of funds' refers to the movement of hinds in the working capital. If transaction
results in the increase in working capital, it is said to be a source or Inflow of funds and if
It in the decrease of working capital, it is said to be an application or out-flow of 'funds.

Rule
The flow of funds occurs when a transaction changes on the one hand a non-current
account on the other a current account and on the other a current account and vice-versa.
When a change in a non-current account e.g. fixed assets, long-term liabilities, reserves
and surpllote fictitious assets, etc is Mllowed by a change in another non-current account,
it does not amount to flare funds. This is because of the fact that in such cases neither the
working capital increases nor decra-Similarly, when a change in one current account
results in a change in another current account, it does not sibe funds. Funds move from
rum-currents to current transactions or vice-versa only. in simple language** move when
a transaction affects ()) a current asset and a fixed asset or 00 a fixed and a current
Anbtlipi,. or (iii) a current asset and a fixed liability. or (n) a fired liability and current
liability: and funds it not move hen the transaction affects fixed assets and fixed liability
or current assets and current llabilisS,CUNT AND NON-CURRENT ACCOUNTS To understand flow of funds, it is essential
to classify various amounts and balance sheet hear current and non-current categories.
Current Accounts can either be current assets or current liabilities, Current assets an those
assets which in the ordinary course of business can be or will be convened into cash
within a short period of normalls one accounting year. Current liabilities arc those
liabilities which are intended to be paid in the ordinary course of business within a short
period of normally one accounting year out of the current assets or the income of the
business. The following is the list of Current or Working Capital Accounts :