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Management Accounting
Notes i.e. especially due to either increase or decrease in the working capital. Some of the transactions
may lead to increase or decrease the volume of working capital. Some other transactions register
neither an increase nor decrease in the volume of working capital.
According to Foulke, “A statement of source and application of funds is a technical device
designed to analyse the changes to the financial condition of a business enterprise in between
two dates.”
Various facets of fund flow statement are as follows:
1. Statement of sources and application of funds
2. Statement changes in fi nancial position
3. Analysis of working capital changes and
4. Movement of funds statement
5. Depreciation charged on assets
6. Appropriation of profits to reserves
7. Payment of interim dividends
8. Payment and appropriations in relation to provisions for taxation/dividends where they
are treated as non-current liabilities.
Fund flow statement has following objectives:
1. It pinpoints the mobilization of resources and the further utilization of resources.
2. It highlights the financing of the general expansion of the business fi rms.
3. It exemplifies the utilization of debt finance in the structure of fi nancing.
4. It portrays the relationship between the financing, investments, liquidity and dividend
decision of the firm during the given point of time.
Notes Steps in the Preparation of Fund Flow Statement:
1. First and foremost step is to prepare the statement of changes in working capital, i.e.
to identify the flow of fund/movement of fund through the detection of changes in
the volume of working capital.
2. Second step is the preparation of Non-current A/c items-Changes in the volume of
Non-current A/cs have to be prepared only in order to quantify the flow fund, i.e.
either sources or application of fund.
3. Third step is the preparation Adjusted Profit & Loss A/c, which already elaborately
discussed in the early part of the unit.
4. Last step is the preparation of fund fl ow statement.
Self Assessment
Fill in the blanks:
1. The fund flow statement depicts the ………………… receipts and cash disbursements/
payments.
2. Fund flow means a study of …………………
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