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
