Fund flow statement preparation rules
There are few rules that are required to be followed before preparing fund flow statement. Your observation should be focused on these aspects.
- An increase in working capital states that there is also an increase in the current asset.
- An increase in working capital means a reduction in current liabilities.
- A drop in current asset signifies diminution in working capital.
- Reduction in current liabilities indicates a surge in working capital.
Fund flow statement preparation steps
There some steps which are involved in preparing fund flow statement. The steps are as follows:
- You need to ascertain the adjustment account that has to be converted to net income.
- Calculate working capital’s increase or decrease.
- Validate a change in the balance sheet for every non-current account on it.
- Analyse and decide whether the change is due to a source or use of working capital.
- Make sure that the change seen is working capital is the result of the sum of all sources. This also includes the sources from operations, subtracted by the sum of all working capital uses.
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