Page 224 - DMGT202_COST_AND_MANAGEMENT_ACCOUNTING

Unit 12: Fund Flow Analysis

At the end of the year, the total volume of the capital should be equivalent to ` 1,70,000 but it Notes
amounts ` 1,53,000. It is only due to the personal drawings of the owner of the enterprise.
The next non-current liability account is loan from P.N.B Bank.
The closing volume of the loan is more than the opening balance of loan; it means that the

firm has recently borrowed an amount of ` 10,000 in addition to opening balance of the loan
borrowings.
While borrowing, what happens in the fi rm?

Debit what comes in - Cash resources are coming inside the business.
Credit the giver/liabilities - Register the name of the banker who is nothing but the giver of the
loan.

Dr Loan P.N. Bank A/c Cr

Particulars ` Particulars `
By Balance B/d 40,000
To Balance c/d 50,000 By Cash (Balancing fi g) 10,000
50,000 50,000

The next non-current liability is Mr.White’s loan amount of ` 25,000.
The opening balance of the loan amount is greater than the closing balance which amounted to
` 25,000; it means that the initial loan amount was paid during the year.

Dr Mr. White’s A/c Cr
Particulars ` Particulars `
To Cash (Loan paid) 25,000 By Balance B/d 25,000
To Balance c/d -----------
25,000 25,000
While repaying the loan amount, what happens in the fi rm?

The name of the party that receives the amount of loan repayment should be mentioned.
Debit the receiver - Cash resources are going out of the firm during the moment of making the

repayment of the loan. Credit what goes out of the fi rm.
The closing balances of the land and building are greater than the opening balances: this means
that additional land and building was procured by the firm for its future prospects.

The purchase of the land & building leads to applications -outflow of fund

The next step is to prepare the Adjusted Profit & Loss Account.

Adjusted Profit & Loss Account
Particulars ` Particulars `
To Machinery (Loss on sale) 2,000 By Balance B/d -----------
To Provision for Depreciation 18,000 By fund from operations 65,000
To Balance c/d (Net profi t) 45,000
65,000 65,000
The next step is to prepare the fund fl ow statement.

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