Page 17 - DCOM302_MANAGEMENT_ACCOUNTING

Management Accounting

Notes investors where funds have come from and where funds have gone. The statements are
often used to determine whether companies efficiently source and utilize funds available

to them.

Did u know? How to Prepare a Fund Flow Statement
Fund flow statements are prepared by taking the balance sheets for two dates representing

the coverage period. The increases and decreases must then be calculated for each item.

Finally, the changes are classified under four categories: (1) Long-term sources, (2) long-
term uses, (3) short-term sources, (4) short-term uses.
It is also important to zero out the non-fund based adjustments in order to capture only the

changes that are accompanies by flow of funds. However, income accrued but received and
expenses incurred but not received reckoned in the profit and loss statement should not be

excluded from the profi t figure for the fund fl ow statement.
Fund flow statements can be used to identify a variety of problems in the way a company

operates. For example, companies that are using short-term money to fi nance long-term
investments may run into liquidity problems in the future. Meanwhile, a company that is

using long-term money to finance short-term investments may not be effi ciently utilizing
its capital.

Example: Determination of Sources and Uses
Assets 2007 2006 +/– S/U
Cash and C.E. $90 $100 – S
Acct. Rec. 394 410 – S
Inventories 696 616 + U
Prepaid Exp 5 5 –
Accum Tax Prepay 10 9 + U
Current Assets $1,195 $1,140 N/A
Fixed Assets (@Cost) 1030 930 N/A
Less: Acc. Depr. (329) (299) N/A
Net Fix. Assets $701 $631 + U
Investment, LT 50 50 –
Other Assets, LT 223 223 –
Total Assets $2,169 $2,044

Assets 2007 2006 +/– S/U
Cash and C.E. $90 $100 10 S
Acct. Rec. 394 410 16 S
Inventories 696 616 80 U
Prepaid Exp 5 5 –
Accum Tax Prepay 10 9 1 U
Current Assets $1,195 $1,140 N/A
Fixed Assets (@Cost) 1030 930 N/A
Less: Acc. Depr. (329) (299) N/A
Net Fix. Assets $701 $631 70 U
Investment, LT 50 50 –
Contd…

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