A

PROJECT REPORT
ON
“FUND FLOW STATEMENT”
SUBMITTED TO
SAVITRIBAI PHULE PUNE UNIVERSITY
IN PARTIAL FULFILLMENT OF
BACHELOR OF BUSINESS ADMINISTRATION [BBA-III]
SUBMITTED BY
MISS. SHIRKE KARTIKI RATNADEEP
UNDER THE GUIDANCE OF
PROF. SNEHAL PHALLE
THROUGH
SNBP COLLEGE OF ARTS COMMERCE SCIENCE &
MANAGEMENT STUDIES, MORWADI, PUNE
 ACKNOWLEDGEMENT

Firstly, I would Like to Praise and Thank Almighty to Help Me Successfully

Come till This Point of My Life. May He Always Keep Showering His
Blessings on All of Us.
I Wish to Express My Deep Sense of Gratitude to Prof. Snehal Phalle for Her
Valuable Advice and Guidance to Me Throughout My Project.
I Would Like to Place on Record My Sincere Thanks to Memorandum with
Reference to Business Communication.
I Would Like to Express My Willingness and Gratitude to Snehal Mam for
Giving Me an Opportunity to do Project on Memorandum.
Lastly, But Not the Least Express My Gratitude to My Beloved Parents and
Brothers and I Would Like to Thank My Friends and All the Other People Who
Directly and Indirectly Help Me During This Project

Shirke Kartiki Ratnadeep

 DECLARATION

I hereby declare that the project entitled “FUND FLOW STATEMENT”

completed and submitted by me to Savitribai Phule Pune University, Pune for
Completion of BBA-III under the guidance of Prof. Snehal Phalle, is my original
work and that the Conclusion drawn therein are based on the data collected by
myself.
To the best of my knowledge and belief, this research work has not Submitted
earlier to this for completion of BBA.

Miss Shirke Kartiki Ratnadeep

Date: BBA-III
 INDEX
Chapter No. Contents Page No.

1 Executive Summary 1-5

2 Objective & Scope 6-7

3 Review of Literature 8-11

4 Research Methodology 12-18

5 Data Analysis & 18-23
Interpretation
6 Findings & Conclusion 24-25

7 Bibliography 26
EXECUTIVE SUMMARY
ABSTRACT

Fund flow statement is a statement showing sources and application of

funds for a period of time.
Fund flow statement is one of the valuable tool in the hand of management
to evaluate the uses of funds by the organisation and in determining as to
how these uses are financed.
Fund flow statement is statement which discloses the analytical
information about the different sources of fund and the application of the
same in the specific accounting cycle.
In other words, it incorporates those transactions which change either the
amount of current assets or current liabilities (in the form of increased or
decreased working capital) or fixed assets, long-term loans and equity
capital.
Fund flow statement is also called the 'Statement of Sources and
Application of Fund 'Movement Funds Statement’.
Fund flow statement attempts at providing a link in the completion of final
statements .
Fund flow statement is a statement in summary form that indicates the
changes occurring in items of financial condition between two different
balance sheet dates
INTRODUCTION

The two basic financial statements which are important to owners,

management and creditors are the Balance sheet and Profit and loss A/c.
It reveals that financial position of the company at a certain point of time,
it does not present any analysis.
The balance sheet gives a summary of assets and liabilities of an
undertaking at particulars point of time.
It reveals the financial status of the company.
The assets side of balance sheet shows the development of resources of an
undertaking while the liabilities side indicates its obligations, i.e. the
manner in which these resources are obtained.
The profit and loss account reflects the result of the business operations for
a period of time.
It contains a summary of expenses incurred and the revenues realized in an
accounting period.
Both these statements provide the essential basic information on the
financial activities of a business, but its usefulness is Smited for analysis
and planning purpose.
The balacesheet gives a static view of the resources of a business and the
uses (assets) to which these resources have been put at a certain point of
time.
It does not disclose the causes for changes in the assets and liabilities
between two different points of time.
The Profit and loss A/c, in a general way, indicates the resources provided
by operation.
But there are many transactions that take place in an undertaking and
which do not operate through Profit and loss A/c.
Thus another statement has to be prepared to show the 31 changes in the
assets and liabilities from the end of one period of time to the end of
another period of time.
This statement is called a statement of changes in financial position or
fund flow statement.
The fund flow statement is a statement which shows the movement of
funds and is report of the financial operation of the business undertaking.
It indicates the various means which funds were obtained during a
particular period and the way to which these funds were employed. In
simple words, a statement of sources and application of funds.
Fund flow statement is a statement which explains the change in the
items of balance sheet over the period of time. A fund flow statement
examines the sources and uses of funds of a firm between two points of
time.
The term “Funds” has been described in many ways. Many interpret funds
as cash only and fund flow statement prepared of this ratio is called a cash
flow statement.

In this type of statement only inflow and outflow of cash flow obtain into
account.

This narrow concept of cash flow often leads to omission of such items
which do not directly affect cash or working capital.
MEANING OF FUNDS

In a limited sense, the term ‘fund’ means ‘cash’. But this is not the correct
meaning of the term ‘fund’ because there are many transactions in the
business which do not result in inflow or outflow of cash but certainly
result in the inflow or outflow of funds.

For example, a machine is purchased on two months credit. Although cash

is not immediately affected by this transaction, it certainly results in an
outflow of funds.

As such, the term ‘fund’ stands for ‘Working Capital’.

Working Capital = Current Assets – Current Liabilities

MEANING OF FLOW

The term ‘flow’ means change or movement. Therefore, the term ‘Flow of
Funds’ means ‘change in funds’ or ‘change in Working Capital’. In other
words, ‘FLOW of Funds means increase or decrease in working capital.

Every Transaction will have one of the followings effect:

If a transaction results in the increase of working capital, it is said

to be a source of funds.
If the transaction results in the decrease of working capital, it is
said to be an application of funds.
If the transaction does not result in any change in the working
capital, it is said that it does not result in the flow of fund.
OBJECTIVES OF THE STUDY

It help in identifying the sources from where funds have been

obtained as well as where have they been utilized.

It highlights the financing pattern of the expansion of the firm.

It pinpoints the use of debt finance in the financing structure.

It describes the relationship between liquidity, financing, investment

and dividend decision of a firm.

To indicate the result of current financial management. To lay

emphases on the most significant changes that has been place,
during a specific period.

To describe the sources from which additional fund were

derived.

To establish the relationship between profit from operations,

distribution of dividend & rising of new capital on contracting
of loans.

To give recognition to the fact a business exists or flow of funds

and is not a static organization.
SCOPE OF THE STUDY

It is a statement which discloses the analytical information about the

different sources of a fund and the application of the same in an
accounting cycle.

It deals with the transactions which change either the amount of current
assets and current liabilities (in the form of decrease or increase in
working capital) or fixed assets, long-term loans including ownership
fund.

It gives a clear picture about the movement of funds between the opening
and closing dates of the Balance Sheet.

It is also called the Statement of Sources and Applications of Funds:

Movement of Funds Statement: where got where gone statement; Inflow
and Outflow of Fund Statement etc.

No doubt. Funds Flow Statement is an important indicator of financial

analysis and control.

It is a valuable aid to the financial manager and also to a creditor for

assessing the uses of funds and also helps to determine how the funds are
financed. The financial analyst can evaluate the future flows of a firm on
the basis of past data.
REVIEW OF LITERATURE

Fund flow statement shows how the financial resources have been used
during a particular period of time.
It is, thus, a historical statement showing sources and application of funds
between the two dates designed especially to analyse the changes in the
financial conditions of an enterprise.

“A statement of Sources and Application of Funds is a technical device

designed to analyse the changes in the financial condition of a business
enterprise between two dates.”
- Foulke
Funds Flow Statement is not an income statement. Income statement
shows the items of income and expenditure of a particular period, but the
Funds flow statement is an operating statement as it summaries the
financial activities for a period of time. It covers all movements that
involve an actual exchange of assets.

Various titles are used for this statement such as ‘Statement of sources and
Application of Funds’, ‘Summary of Financial operations,’ ‘Changes in
Financial Position’, ‘Fund received and Disbursed’, ‘Funds Generated and
Expended’, Changes in Working Capital”, “Statement of Fund’ etc.
Title of Funds Flow Statement has been modified from time to time.
Really it is very difficult to find a short time for such statement which
carries much to the readers regarding its contents and functions.

A new interpretation of the term ‘funds, has now been adopted as to

include assets or financial resourceful which do not flow through the
working capital accounts.

It seems to be the most suitable meaning fort the term ‘funds’ but the most
commonly used interpretation of the term ‘funds’ is ‘working capital’

USES OF FUNDS FLOW STATEMENT

One gets an insight into financial operation of the firm. This will
help to analyze the past trends and plan future operations.

It is possible to know external sources. It will also be clear whether

growth was at a rapid pace and financing was strained.

It reveals disproportionate growth of inventories and disproportions

increase in creditors in relation to current assets affecting the credit
worthiness of the firm.

It is possible to detect the imbalances in the use of funds. For

example to earning against the background of the firms need for
funds.

In the case of multi-division companies funds flow statement helps

to evaluate the performance of division in the use of funds allotted to
them.

It serves as a tool for economic analysis which is a very useful

technique.

It can assist in planning for obtaining resources in the future and in

determining how they are to be used.

It serves to analyst past activity. The statement will show how the
resources have been obtained and the uses to which they are put .
Advantages of Fund Flow Statement

Fund flow statement helps in understanding the effectiveness of

use of working capital.

It helps the management of a company to define its investment

policy by highlighting the changes in working capital.

It enables the firm to evaluate its current financing pattern and

take suitable corrective measures in case it finds any inadequacies.

It assists the creditors, financial institutions and banks in

understanding the financial soundness of the firm.

It acts as a guide to the management to maintain the working

capital at the optimum level through either purchase or sale of
marketable securities during the periods of adequate and
inadequate working capital respectively.

Limitations of Fund Flow Statement

Fund flow statement lacks originality. It simply rearranges the

data which exists in the financial statements in a systematic way.

It is historic in nature and indicates what has happened in the past

and provides no estimate of the future.

It cannot be used on a standalone basis as it gives idea only about

a change in working capital and hence has to be used with the
balance sheet and profit and loss account.

It cannot reveal continuous changes that are happening in the

financial activities of the company as it takes into consideration
two particular time periods.
RESEARCH METHODOLOGY

Funds flow statement reveals the net result of operations done by

the company during the year.

In addition to the balance sheet, it serves as an additional

reference for many interested parties like creditors, suppliers,
government etc. to look into financial position of the company.

It shows how the funds were raised from various sources and also
how those funds were put to use in the business, therefore it is a
great tool for management when it wants to know about where
and from funds were raised and also how those funds got utilized
into the business.

It reveals the causes for the changes in liabilities and assets

between the two balance sheet dates therefore providing a detailed
analysis of the balance sheet of the company.

Funds flow statement helps the management in deciding its future

course of plans and also it acts as a control tool for the
management.

Helps in the evaluation of alternative finance and investments

plan;

Investors are able to measure as to how the company has utilized

the funds supplied by them and its financial strengths with the aid
of funds statements.

Helps the management of companies to forecast in advance the

requirements of additional capital and plan its capital issue
accordingly.

Help in the planning process of a company

Helps in analysis of financial operations.

PREPARATION OF FUND FLOW STATEMENT

Step I: Prepare Statement of Changes in Working Capital

For preparing the Funds Flow Statement, the first step is to prepare
the Statement of Changes in Working Capital.

There may be several reasons for changes in the Working Capital Position
of a Company, some of which have been discussed below:-

1. Purchase of Fixed Assets or Long Term Investments without raising

Long Term Funds.
2. Payments of Dividends in excess of the Profits earned.
3. Extension of Credit to the Customers.
4. Repayment of a Long Term Liability or Redemption of Preference.
Shares without raising Long Term Resources.

Step II: Prepare Funds from Operations

The next Step is to prepare the Funds generated only from the Operating
Activities of the Business and not from the Investing/Financing Activities
of the business. The Funds from Operations shall be prepared as follows:-

Particulars Amount

Net Income xxx

ADD

1. Depreciation on Fixed Assets xxx

2. Amortization of Intangible Assets xxx

3. Amortisation of Loss on Sale of Investments xxx

4. Amortisation of Loss on sale of Fixed Assets xxx

5. Losses from Other Non-Operating Incomes xxx

6. Tax Provision (Created out of Current Profits) xxx

7. Proposed Dividend xxx

8. Transfer to Reserve xxx

(LESS)

1. Deferred credit xxx

2. Profit on Sale of Investments xxx

3. Profit on Sale of Fixed Assets xxx

4. Any written back Reserve & Provision xxx

STEP III: PREPARATION OF FUND FLOW STATEMENT

While preparing the Funds Flow Statement, the Sources and Uses of
Funds are to be disclosed clearly so as to highlight the Sources from
where the Funds have been generated the Uses to which these Funds
have been applied.

Sources of Funds

Items to be shown under the head Sources of Funds are as follows:-

Issue of Shares and Debentures for Cash: – The total amount

received from the Issue of Shares or Debentures is to shown under
this head. But, the Issue of bonus Shares or Conversion of
 Debentures into Equity Shares or Shares issued to vendors shall
not be shown here as there is no inflow of Cash
Long Term Loans: The Amount received on raising Long Term
Loans is shown under this head. Short Term Loans are not to be
shown here as their treatment has already been done while
preparing the Statement of Changes in Working Capital.
Sale of Investments and other Fixed Assets: The Total Amount
received on the sale of Investments and other Fixed Assets is to
be shown under this head.
Funds from Operations: The Funds generated from Operations
as computed in Step II are also required to be shown here.
Decrease in Working Capital: This would be the Balancing
Figure of the Statement and will come from change in Working
Capital Statement

Application of Funds

Items to be shown under Application of Funds are as follows:-

Purchase of Fixed Assets and Investments: The Cash Payment

made for purchase of Fixed Assets and Investments is an
application of Funds. But if the purchase if made by issue of
shares or debentures, such a transaction will not constitute
application of funds. Similarly, if the purchases are on credit,
these will not constitute fund applications.
Redemption of Debentures, Preference Shares and
Repayment of Loan:- Payment made including Premium (less:
Discount) is to be taken as fund application
Payment of Dividend & Tax: Payment of Dividend and Tax are
to be taken as applications of fund if the provisions are excluded
from Current Liabilities and Current Provisions are added back to
profit to determine the “Funds from Operations”
Increase in Working Capital: This would be the Balancing
Figure of the Statement and will come from change in Working
Capital Statement
Benefits of Funds Flow Statement

Funds Flow Statement is useful for Long Term Analysis. It is a very useful
tool in the hands of the management for judging the financial and operating
performance of the Company.

The Balance Sheet and the Profit and Loss A/c (Income Statement) fail to
provide the information which is provided by the Funds Flow Statement i.e.
Changes in Financial Position of an enterprise. Such an analysis is of great
help to the management, shareholders, creditors etc

The Funds Flow Statement helps in answering the following

questions:-
 Where have the profits gone?
 Why is there an imbalance existing between liquidity position and
profitability position of an enterprise?
 Why is the concern financially solid in spite of losses?

The Funds Flow Statement analysis helps the management to test

whether the working capital has been effectively used or not and the
working capital level is adequate or inadequate for the requirements
of the business. The Working Capital Position helps the management
in taking policy decisions regarding payment of dividend etc.

The Funds Flow Statement Analysis helps the investors to decide

whether the company has managed the funds properly. It also
indicates the Credit Worthiness of a company which helps the lenders
to decide whether to lend money to the company or not. It helps the
management to take policy decisions and to decide about the
financing policies and Capital Expenditure for the future.
DATA ANALYSIS & INTERPRETATON

To prepare a fund flow statement, list the receipts from assets and
liabilities on the sources side and the payments for assets and liabilities on
the application side.

To do this, we need a balance sheet at the beginning and end of

the accounting period for which a fund flow statement is prepared.
From the following balance sheets of Kites Limited, prepare a statement of
changes in working capital and fund flow statement.
Solution:
Statement of Changes in Working Capital

Note: Net decrease in working capital is entered in the increase column to

balance the statement.
Fund Flow Statement

Alternatively: Statement of Sources and Application of Funds

FINDINGS & CONCLUSION

Fund flow statement is very important for every organization. It can really
determine how the business should be carried on in the future.
we can proper utilize the budget of the company and the strategy to cope
the financial problems of the company through the preparation of the fund
flow statement.
As we know the aim of fund flow statement is to know the working capital
of the company whether it increases or decreases during a given period of
time.
So it is a main tool to make a organization to survive in the future.

A fund flow statement shows the various means by which funds have been
obtained and used in a business over a specific period. As such, such a
statement is a statement of a firm’s cash inflows and cash outflows.

To further highlight the term “funds”, note that there are commentators
who view funds as cash or working capital, which represent the excess
of current assets over current liabilities.
 BIBLIOGRAPHY

https://www.google.com
https://www.investopedia.com
https://www.wikipedia.com
https://www.fundflow.com
https://www.financemanagement.com