How to prepare Fund flow

Fund Flow statement is prepared on accrual basis and to know the changes in financial position of the current year with respect to previous year

There are three steps in preparing fund flow-

  • Calculate fund from operation- Under this step, we adjust profit /Loss account balance to know the fund from operation.

Example-

Net profit as per profit & Loss –                 …………….

Add: depreciation

Add: Loss on sale of fixed assets

Add: transfer to reserve

Add: Proposed dividend

Fund from operation                                    ————-

  • Change in working capital-Under this step , we calculate changes in working capital between two balance sheet date
Particulars Previous Year Current Year Effect of change in working in working capital
      Increase in wc Decrease

in wc

A-Current Assets 350000 325000   25000
B-Current Liabilities 100000   90000 10000  
Working capital (A-B) 250000 235000    
Net decrease in working capital     15000 15000  
Total 250000 250000 25000 25000

Note: Net decrease in working capital means, we have inflow of fund.

 

  • Preparing fund flow statement- This is the final step which is prepared to analyse the reasons for changes in the financial position of a company between two balance sheets.

A Fund Flow statement which gives us the following two information –

Sources of funds – From where the funds have come in

Application of funds – Where these funds have been used

 

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