CASH FLOW STATEMENT
Cash flow is the life blood of a business which plays a vital role in an
entire economic life. Cash flow s refers to actual movement of cash into
and out of an organization. In other words, the movement of cash
inclusive of inflow of cash and outflow of cash. When the cash flow into
the organization, it represents ‘inflow of cash’. Similarly when the cash
flows out of the business concern, it called as “cash outflow”.
In order to ensure cash flows are adequate to meet current liabilities such
as tax payments, wages, amounts due to trade creditors, it is essential to
prepare a statement of changes in the financial position of a firm on cash
basis is called as “cash flow statement”. This statement depicting
movement of cash position from one period to another.
Uses of cash Flow statement
Cash flow statement is a useful tool to the management for taking
important financial decision making. The following are the uses of this
statement:
1. This statement is the most useful to the management to prepare
dividend and retention policies.
2. It guides the management to evaluate the changes in cash position.
3. It presents in brief to the management about the performance of
operational, financial and investment activities for effective
decision.
4. It helps to how the movement of cash took place and the factors
which caused the changes in cash flows.
5. It guide the management to take decision about short term
obligation.
6. It also presents the details about the sources of cash and application
of cash during the particular period.
Difference between Fund Flow statement & Cash Flow
statement:
Fund Flow statement & Cash Flow statement are two useful tools of
financial analysis and interpretation of financial statements. But at the
same time both the statement differ from each other in the following
manner:
1. Fund Flow statement helps to measure the causes of change in
working capital, whereas
cash flow statement focuses on the causes for the movement of
cash during a particular period.
2. Fund flow statement is prepared on the basis of fund or all financial
recourses, while
Cash Flow statement is based on cash basis of accounting.
3. Cash flow statement guides to the management for short term
financial planning, while
Fund Flow analysis helps to management for intermediate and long
term financial planning.
4. Statement of changes in working capital is required for the
presentation of Fund Flow statement, while
For cash Flow statement no such statement is required.
FUND FLOW STATEMENT
“A statement of sources and application of funds is a technical device
designed to analyse the change in the financial condition of a business
enterprise between two dates.”- by ‘Foulke’.
In brief it may be said that fund statement focuses on flow of funds
between the various assets and equity items during the accounting
period. And analysis base4d on this statement is generally called “fund
flow statement”.
Meaning of fund:
The term “fund” refers t cash, to cash equivalent or to working capital and
all financial resources which are used in business.
Meaning of flow of fund :
The term “flow of funds” refers to change or movement of funds or
change in working capital in the normal course of business transactions.
INFLOW OF FIRM OUTFLOW OF
FUNDS FUNDS
BUSINESS
TRANSACTI
ONS
Preparation of FUND FLOW STATEMENT
Fund flow analysis involve the following important three statement such
as :
I. FUND FROM OPERATIONS:
II. STATEMENT OF CHANGES IN WORKING CAPITAL
III. FUND FLOW STATEMENT.
PERFORMA OF FUND FLOW STATEMENT
FUND FLOW STATEMENT
Sources of funds Amou Application of funds
nt
• Fund from • Fund lost in
operation operations
• Issue of share • Redemption of
capital shares
• Issue of • Redemption of
debentures debentures
• Long-term loan • Purchase of fixed
assets
• Sale of fixed assets
• Repayment of
• Sale of investment long-term loan
• Non-trading • Non-trading
incomes expenditures
• Decrease in • Payments of tax
working capital
• (as per schedule of • Payments of
changes in working dividend
capital)
• Increase in working
capital
• (as per schedule of
***
changes in working ***
capital)
Total inflow
Total outflow
