Fund Flow Statement
A Brief Introduction
The funds-flow-statement is a report on financial operations changes, flow or movements during the period.
It is a statement, which shows the sources and application of funds or it shows how the activities of a business is financed in a particulate period.
In other words, such a 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 analyze the changes in the financial conditions of an enterprise.
In the words of Foulke, it is-
“A statement of Sources and Application of Funds is a technical device designed to analyze the changes in the financial condition of a business enterprises between two dates. ”
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.
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 for the term funds but the most commonly used interpretation of the term funds is ‘Working Capital
Objectives of Fund Flow Statement
Funds Flow Statement is an analytical tool in the hands of financial manager.
The basic purpose of this statement is to indicate on historical basis the changes in the working capital i.e., where funds came from and were there is used during a given period.
The utility of this statement can be measured on the basis of its contributions to the financial management.
It serves the following major purposes :
Analysis of Financial Position
Evaluation of the Firms Financing
An Instrument for Allocation