FUND FLOW STATEMENT

Scientific methods of preparation of

Fund Flow Statement
FORMAT OF SCHEDULE OF CHANGES
IN WORKING CAPITAL
Funds from operations
Direct method
Indirect method

Direct method

Funds from operations = Funds from operating
revenue less funds for operating expenses
Indirect Method
Profit & Loss Adjustment Account
Profit & Loss Adjustment Account
To Net Profit ( given ) ** By Non- Cash income
To Non - Cash Expenses Revaluation of assets **
Depreciation ** Revaluation of investments **
Written off entries **
To Loss on sale of assets ** By Profits on sale of assets **
To Bad debts ** By Dividend received
To Tax **
To Dividends **
To Transfer to reserves ** By Funds from Operations **
** **
Statement of Adjustment

Net Profit as per Profit & Loss Account **

Add:
Non- Cash and non operating expenses **

Less :
Non-cash and non- operating income **

Funds from operations **


Format of Fund Flow Statement

Sources / Inflow

Rs

Applications/Outflow

Rs
Funds from Operations ** Funds lost in operations **
Sale of fixed assets ** Purchase of fixed assets **
Sale of Investments ** Purchase of investments **
Issue of shares ** Redemption of preference
shares
**
Issue of debenture ** Redemption of debenture **
Loan taken ** Loan repaid **
Dividend Received ** Dividend paid **
Non-Operating income ** Non operating expenses **
Decrease in working capital ** Increase in working capital **
** **
Need for fund flow statement

1. Shortcomings in Balance Sheet

2. Shortcomings in Profit & Loss Account

Importance of Fund Flow Statement
1. Gives information about amount of working
capital and changes in the amount of working
capital.
2. It analyses Balance sheet to reveal the financing
& investing activities.
3. It analyses the Profit & Loss Account to reveal
the effect of business activities of the concern
on the flow of funds.
4. It is a tool for planning future activities of
business.