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Sukhpreet Kaur, Lovely Professional University Unit 12: Fund Flow Analysis

Unit 12: Fund Flow Analysis Notes

CONTENTS

Objectives
Introduction
12.1 Meaning of Fund Flow Statement
12.2 Preparation of Statement of Changes in Working Capital
12.3 Preparing Funds from Operations

12.3.1 Net Profi t Method
12.3.2 Sales Method
12.4 Preparing Fund Flow Statement
12.5 Summary

12.6 Keywords
12.7 Review Questions
12.8 Further Readings

Objectives

After studying this unit, you will be able to:

Explain the meaning of fund fl ow analysis
Illustrate the preparation of statement of changes in working capital
Prepare fund fl ow statement

Introduction

Every business establishment usually prepares the balance sheet at the end of the fi scal year
which highlights the fi nancial position of the yester years. It is subject to change in the volume
of the business not only illustrates the financial structure but also expresses the value of the

applications in the liabilities side and assets side respectively. Normally, Balance sheet reveals
the status of the firm only at the end of the year, not at the beginning of the year. It never discloses

the changes in between the value position of the firm at two different time periods/dates.

The method of portraying the changes on the volume of financial position is the analysis of fund

fl ow statement.
12.1 Meaning of Fund Flow Statement

In a narrow sense, the term fund means cash, and the fund flow statement depicts the cash

receipts and cash disbursements/payments. It highlights the changes in the cash receipts and

payments as a cash flow statement in addition to the cash balances, i.e. opening cash balance and
closing cash balance. Contrary to the earlier, the fund means working capital, i.e. the differences
between the current assets and current liabilities.
The term flow denotes the change. Flow of funds means the change in funds or in working capital.

The change on the working capital leads to the net changes taken place on the working capital,

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