Introduction of Fund Flow Statement

Introduction

When it is about financial analysis, the role of balance sheet and standard concept of gain or loss in an account are very restricted. Mirroring the result of a business action, this profit or loss in an account is a record for a specific duration. The reflection only showcases sustainable expenses and the earnings which were acquired during the accounting period.

One can find the summarization of liabilities and assets in a balance sheet of a particular period. But it does not mean that this balance sheet gives a detailed explanation of the fund movement.

What really happens in general in a business concern is that the investment takes place in various ways through the funds which are received from different resources. This is the actual process which carries on.Financial management mainly focuses on maintaining the financial soundness and solvency of a company by studying and controlling the funds.

A different statement is an absolute necessity to find any periodical boost or decrease in funds of a firm. This statement is referred as fund flow statement whose purpose is to study the fund sources and its application over an accounting period.

Defining fund flow statement

It is a statement which is put together to analyse the causes of changes, i.e., an inflow and outflow of funds, that can be found on two different balance sheets.

Other terms of Fund Flow Statement

Statement of funds supplied and applied

Inflow-outflow of fund statement

Funds received and disbursed statement

A statement of sources and application of funds

Where Got and where Gone statement

A statement of sources and uses of funds

Administrative Utilisation of Fund Flow Statement

For a financial manager,fund flow statement is deemed as a helpful analytical tool which is used for serving the purpose of funds evaluation and also for accessing their sources.There are few essential administrative utilisations of fund flow statement which are described below.

1. The fund flow statement is used for analysing the causes of financial position changes in the assets and liabilities between two balance sheets.
2. This fund flow statement provides the fund details which were acquired and used in the past. Depending on its details, an administrative head can take significant actions.
3. It provides answer to different financial questions like,

In which ways were the funds used?

How much capital was accumulated?

4. It helps in identifying a company’s weak and strong financial areas.
5. In comparison to budgeted figures, fund flow statement performs as a control device. If there are any deviations, it also acts a guiding help to the administrative head for taking effective actions.
6. It also states the correct using method of scarcely available resources according to requirement.
7. Fund flow statement empowers the authoritative body to update company’s financial activities based on their records.
8. It assists the management in formulating different policies like bonus, dividend and much more.
9. This statement helps the financial firms to estimate the credit value and also the repaying potential of a borrowing company.
10. Fund flow statement provides a detailed guideline to the management with the help of which they can take correct steps in using their excessive funds. Even in case of inadequate funds, this statement helps in making appropriate arrangements in improving the capital position.

Links of Previous Main Topic:-

• Introduction to accounting and branches of accounting
• Preparation of final accounts

Links of Next Finance Book Topics:-

• Limitations of fund flow statement
• Steps in preparation of fund flow statement
• Problems and solutions fund flow statement