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Unit 7: Fund Flow Statement

The method of portraying the changes on the volume of financial position is the analysis of fund Notes
flow statement.

7.1 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 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 financial position
3. Analysis of working capital changes
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
9. Purchases of assets for cash, in exchange for current assets
10. Sale of assets at a profit/loss.

7.2 Objectives of Fund Flow Statement Analysis

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 firms.
3. It exemplifies the utilization of debt finance in the structure of financing.
4. It portrays the relationship between the financing, investments, liquidity and dividend
decision of the firm during the given point of time.

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