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FUNDS FLOW STATEMENT

MEANING OF FUND:
It means working capital. Working capital is the excess of current assets over current liabilities.
MEANING OF FLOW OF FUND:
It means the change in working capital. It indicates the inflows and outflows of funds.
FUNDS FLOW STATEMENT:
It is a financial report on movements of funds explaining from where the funds originate and where
it is used during the period. This statement consists of two parts- Sources of funds and Application
of funds. The basic object of this statement is to find out increase or decrease in working capital
during a period by showing sources and uses of working capital.
PREPARATION OF FUNDS FLOW STATEMENT:
Generally, fund flow requires preparation of three statements:
1. Statement showing the changes in working capital
2. Funds flow statement
3. Profit and loss adjustment account (optional)
STATEMENT SHOWING CHANGES IN WORKING CAPITAL/SCHEDULE OF CHANGES IN
WORKING CAPITAL/ ANALYSIS OF WORKING CAPITAL:
Proforma:
Particulars
P
Y C
Y Increase
in Decrease
in
amt
amt
WC
WC
Current assets:
Cash
Bank
Bills receivables
Debtors
Temporary investments
Stock
Prepaid expenses
Outstanding income (etc)
TOTAL CURRENT ASSETS (A)
Current liabilities:
Bills payables
Creditors
Outstanding expenses
Bank overdraft
Short term advances (etc)
TOTAL CURRENT LIABILITIES (B)
WORKING CAPITAL (A) (B)
Net increase or decrease in working
capital
(to be transferred to FFS)

Total
Remember:
1. Consider only the balance sheets for preparation of this statement and ignore all the additional
information.
2. For current assets increase in assets means increase in working capital and decrease in assets
means decrease in working capital. Similarly for current liabilities increase in liabilities means
decrease in working capital and decrease in liabilities means increase in working capital.
PROFIT AND LOSS ADJUSTMENT ACCOUNT:
Proforma:
Particulars
Debit amount
To depreciation
To share discount written off
To goodwill written off
To premium of redemption

Particulars
By opening balance of P&L A/C
By dividend received
By excess provision written back
By funds from operations (bal fig)
(to be transferred to FFS)

Credit amount

To transfer to general reserve


To transfer to other reserves
To loss on sale of fixed assets
To tax provision
To dividend provision
To closing balance of P&L A/C
Total
Total
Remember:
1. P&L Adjustment account is not the part of the FFS but it is necessary to prepare it to
calculate the amount of FFO. It is not the integral part of the main answer and can be shown
in the working notes also.
2. It can be prepared in the statement form also.
3. Opening and closing balances are taken from the balance sheet liability side Profit and Loss
Appropriation Account.
FUNDS FLOW STATEMENT:
Proforma:
Sources of funds

Amount

Application of funds

Funds from operation (cr bal)

Funds from operation (dr bal)

Issue of equity shares

Redemption of preference shares

Issue of debentures

Redemption of debentures

Issue of preference shares

Repayment of long term borrowings

Long term borrowings

Purchase of fixed assets

Sale of fixed assets

Premium on redemption

Premium on issue

Net increase in WC

Net decrease in WC
Total

Total

Amount