What is Fund Flow Statement?
Fund Flow statement is the overall summary of the funds movement. It shows overall movements of inflows and outflows of the firm’s financial assets for a particular period. Fund Flow Statement shows from where the funds is received and where the funds is utilized during a particular period.
It helps to understand the changes in the financial position of a business enterprise between the beginning and ending financial statement dates. It is also considered as a statement of sources and uses of funds. Fund flow statement is the extract of overall fund movements statements during a particular period.
Institute of Cost and Works Accounts of India, funds flow statement is defined as “a statement prospective or retrospective, setting out the sources and application of the funds of an enterprise. The purpose of the statement is to indicate clearly the requirement of funds and how they are proposed to be raised and the efficient utilization and application of the same”.
However, Fund may mean:
- Cash
- Net working capital i.e Current Assets less Current Liabilities
- Total resources or total funds
- Internal resources only.
- Net Worth i.e Owners Equity plus reserves.
Key features of Fund Flow Statement:
- Fund Flow statement is one of the important management tools for decision making.
- It is a comparative analytical statement between two consecutive periods.
- This statement shows the movement i.e inflow and outflow of funds during an accounting period.
- To maintain the growth of the business, the fund flow statement to be prepared for the continuous improvement of the business.
- It is considered as the screen process of the business and management will be to know how much funds are available and the fund should be deployed.
Limitations of Fund Flow Statement
- It ignores non-fund items of the business.
- It ignores to project future operations.
- This is not ideal tool for financial analysis.
- The transactions incurred between Current A/c and Non-Current A/c are ignored.
Difference between Fund Flow Statement and Cash Flow Statement
Funds Flow Statement | Cash Flow Statement |
1. Funds flow statement is the report on the movement of funds or working capital
2. Funds flow statement explains how working capital is raised and used during the particular 3. The main objective of fund flow statement is to show how the resources have been balanced mobilized and used. 4. Funds flow statement indicates the results of current financial management. 5. In a funds flow statement increase or decrease in working capital is recorded. 6. In funds flow statement there is no opening and closing balances. | 1. Cash flow statement is the report showing sources and uses of cash.
2. Cash flow statement explains the inflow and outflow of cash during the particular period. 3. The main objective of the cash flow statement is to show the causes of changes in cash between two balance sheet dates. 4. Cash flow statement indicates the factors contributing to the reduction of the cash balance in spite of the increase in profit and vice-versa. 5. In a cash flow statement, only cash receipt and payments are recorded. 6. Cash flow statement starts with opening cash balance and ends with closing cash balance. |