Page 1 of 5
Journal for Studies in Management and Planning
Available at
http://edupediapublications.org/journals/index.php/JSMaP/
ISSN: 2395-0463
Volume 03 Issue 11
October 2017
Available online: http://edupediapublications.org/journals/index.php/JSMaP/ P a g e | 249
Funds Flow Statement
Dr.I.Satyanarayana1
, N.B.C. Sidhu*2
, Maddhi Ravi 3 (15X31E0017)
Abstract:
Financial management is a service activity
which is concerned with providing quantitative
information which is of financial nature which may
be needed for making Economic decisions regarding
the choice among alternative course of actions. The
financial management is a process of identification
accumulation, analysis preparation interpretation
and communication of financial information to plan
evaluate and control a business firm. Financial
management is that specialized function of general
management which is related to the procurement of
finance and its effective utilization for the
achievement of the goals of an organization. Finance
may be defined as the provision of money at the time
where, it is required. Finance refers to the
management flews of money through an organization.
It concerns with the application of skills in the
manipulation, use and control of money. Different
authorities have interpreted the term “finance
“differently. However there are three main
approaches to finance.
The first approach views finance as to providing
of funds needed by a business on most suitable
terms this approach confines fiancés to the
raising of funds and to the study of financial
institutions & instruments from where funds can
be procured.
The second approach relates fiancé to cash.
The third approach views fiancé is being
concerned with raising funds & their effective
utilization.
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1.Principal, Sri Indu institute of Engineering & Technology, Sheriguda, Ibrahimpatnam,Telangana, India.
2.Assoc. Prof & HOD, Dept. of Master of Business Administration, Sri Indu Institute of Engineering & Technology,
Sheriguda, Ibrahimpatnam, Telangna, India.
3.Student, Dept. of Master of Business Administration, Sri Indu Institute of Engineering & Technology, Sheriguda,
Ibrahimpatnam, Telangna, India.
Key words: Financial Markets and functions, financial Policy, Funds flow activities...
Introduction:
The basic financial statements i.e., the balance sheet
and profit and loss account to income statement of
business reveal the net effect of the various
transactions on the operational and financial position
of the company. The balance sheet gives a summitry
of the assets and liabilities of an undertaking at a
particular point of time. It reveals the financial status
of the company. The assets side of a balance sheet
shows the development of resources of an
undertaking while the liabilities side indicates its
obligation, i.e., the manner in which these resources
were obtained. The profit and loss account reflects
the results of the business operation for a period of
time. It contains a summary of expenses incurred and
the revenue realized in an accounting period. Both
these statements provide the essential basic
information on the financial activities of business, but
their usefulness is limited for analysis and planning
purpose. The balance sheet gives a static view of the
resources (liabilities) of business and used (assets) to
which these resources have been put at a certain point
of time. It does not disclose the causes for profit and
loss account, in a general way, indicates the resources
provided by undertaking and which do not operate
through profit and loss account. Thus, another
statement has to be prepared to show the change in
the assets and liabilities from the end of one period of
time to the end of another period of time. The state is
called a statement of changes in financial position or
a funds flow statement. The funds flow statement is a
statement, which shows the movement of funds and
is a report of the financial operations of the business
undertaking. It indicates various means by which
funds were obtained during a particular period and
the ways in which these funds were employed. In
simple words, it is a statement of sources and
application of funds. A financial statement is a
collection of data organized according to logical and
consistence accounting process .Its purpose is to
conveyer an understanding of some financial aspects
of a business firm. Its may show a position at a
moment in time, as in the case of an income
statement. Thus the term “Financial statements”
generally refers the statements.
i) The position statement or the balance sheet
and
Page 2 of 5
Journal for Studies in Management and Planning
Available at
http://edupediapublications.org/journals/index.php/JSMaP/
ISSN: 2395-0463
Volume 03 Issue 11
October 2017
Available online: http://edupediapublications.org/journals/index.php/JSMaP/ P a g e | 250
ii) The income statement or profit and loss
account
These statements are used to convey to
management and other interests outsiders the
profitability and financial position of a firm.
NATURE OF THE FINANCIAL STATEMENTS:
The financial statements are prepared on the
basis of recorded facts. The recorded facts are those
which can be expressed in monitory terms.
I) RECORDED FACTS: The terms and „recorded
facts‟ refers to the date taken out from the accounting
records. The records are maintained on the basics of
actually cost data.
II) ACCOUNTAING CONVENTIONS: Certain
accounting conventions are followed while preparing
financial statements. The conventions of valuing
inventory at cost are market price, whichever is
lower, is followed.
III) POSTULATES: The accounting makes certain
assumption assumptions while making accounting
records. One of these assumptions is that the
enterprise while making accounting records. One of
these assumptions is that enterprise is treated as a
going concern. The other alternative to this postulate
is that the concern is to be liquidated. Another
important assumption is to presume that the value of
money will remain the same in different periods.
While remain the remain the same in different
periods. While preparing profit and loss account the
revenue is treated in the year in.The term flow means
movement & includes both „inflow‟ & „outflow‟.
The term flow of funds means transfer of economic
values from one asset of equity to another. Flow of
funds is said to have taken place when any
transaction makes changes in amount of funds
available before happening of transactions. If the
effect of transaction results in increase of funds. It is
called a “source of funds” and it is results in decrease
of funds, it is known as an application of funds.
1. BALANCE SHEET:
The American institute of certified public
contents defines balance sheet as” A tabular
statement of summary of (Debits and Credits)
carried forward after an actual and constructive
closing or books of account and kept accounting to
principles of accounting”.
2. INCOME OF STATEMENT
ACCOUNTING): ENT (PROFIT AND LOSS)
Income statement is prepared to determine
the operational position of the concern. It is a
statement of revenue earned and expenses, incurred
for earning that revenue.
3. STATEMENT OF CHANGES IN
OWNERS’EQUITY (RETAINED
EARNINGS)
The terms‟ owners equity‟ refers to the
claims of the owners‟ of the business (share
holders) against the assets of the firm. It consists
of two elements 1) paid up share capital,2)
retained earnings or reserves and surplus.
4. STATEMENT OF FINANCIAL
POSITION:
The basic financial position i.e.., the
balance sheet and the profit and loss account are
income statement of a business reveals the net
effect of the various the transactions operational
and financial position of the company.
A) FUNDS FLOW STATEMENTS:
The Funds flow statements is designed to
analyze the changes in the financial condition of
business two periods. The word “Fund” is used to
denote working capital. This statement will show the
sources from each the funds are received and the uses
to which these have been put.
B) CASH FLOW STATEMENTS:
A statement of changes in the financial position of a
firm on cash basis is called cash flow statements. It
summarizes the causes of changes in cash position of
a business enterprises between dates of two balance
sheets This statement is very much similar to the
statement of changes in working capital i.e. Funds
flow statements.
THEORETICAL CONCEPTS:
Management may be defined as optimum
utilization of available resources keeping in view the
overall objectives of the firm. Here fund management
is nothing but, utilization of available funds at
optimum level with a view to achieve the overall
objectives of the organization. This includes
mobilizing or rising of funds from different available
sources and investing or allocating these funds in an
efficient way, which yields the optimum returns, so
that the firm can achieve its overall objectives.
MEANING OF FUNDS:
According to the international Accounting
standard No. 7, the term Fund generally refers to cash
and cash equivalents, or to working capital, of these,
the last definition of the term (i.e., working capital) is
by far the most common definition of fund.
There are also two concepts of working
capital – Gross concept and Net concept. Gross
working capital refers to the firm‟s investment in
current assets. Net working capital means, excess of
current assets over current liabilities. It is in the later
sense in which the term funds is generally used.
Page 3 of 5
Journal for Studies in Management and Planning
Available at
http://edupediapublications.org/journals/index.php/JSMaP/
ISSN: 2395-0463
Volume 03 Issue 11
October 2017
Available online: http://edupediapublications.org/journals/index.php/JSMaP/ P a g e | 251
According to the American Institute of
Certified public Accounts (AICPA),the meaning of
two terms current assets and current assets and
current liabilities are as follows:
CURRENT ASSETS:
The term current asset‟s includes assets,
which acquired with the intention of converting them
into cash during the normal business operations of
the firm.
CURRENT LIABILITIES:
The term current liabilities is used
principally to designate such obligations whose
liquidation is reasonably expected to require the use
of assets classified as current asses in the same
balance sheet or creating of other current liabilities or
those expected to be satisfied with in a relatively
short period of time usually one year (AICPA).
FUNDS FLOW:
The term flow means change, and therefore,
the term Flow of funds means change in Funds or
change in working capital. In other words, any
increase or decrease in working capital means Glow
of funds.
In business several transactions take place.
Some of these transactions increase the fund while
others decrease the funds. Some may not take any
change in funds position. In case a transaction results
in increase of funds, it will be termed as a source
funds In the same way, decrease of funds would
result as an application or use of funds.
THERE WILLBE FLOW OF FUNDS OF A
TRANSACTION INVOLVES:
Current assets and fixed assets (e.g.
Purchase of building for cash).
Current assets and capital (e.g. Issue of
shares for cash )
Current assets and fixed liabilities (e.g.
Redemption of long term borrowings in
cash).
Current Liabilities and fixed liabilities
(e.g. Creditors paid off in debentures)
Current Liabilities and fixed liabilities
(e.g. Creditors paid off in debentures)
Current Liabilities and capital
(eg.Creditors paid off in shares).
Current Liabilities and fixed assets (e.g.
Buildings transferred to creditors in
satisfaction of their claims).
SOURCES AND APPLICATION OF FUNDS:
SOURCES OF FUNDS:
The sources of funds can both internal as
well as external.
INTERNAL SOURCES:
Funds from business operations are the only
internal sources of funds. This can be arrived by
deducting the non – operating expenses (e.g.
Depreciation) and adding the non -operating incomes
(e.g. are Profit from sale of fixed asset.
EXTERNAL SOURCES:
These funds include
FUNDS FROM LONG-TERM LOANS:
Long term loans such as debentures,
borrowing from financial institutions will increase
the working capital and therefore there will be flow
of funds. However, if the dentures have been issued
in consideration of some fixed assets, there will be no
flow.
SALE OF FIXED ASSETS:
Sale of land, buildings, long-term
investments will result in generation of funds.
INCREASE IN SHARE CAPITAL:
Issue of shares for cash or for any other
current asset result in increase in working capitalis
hence there will be flow f funds.
APPLICATION OF FUNDS:
The used to which funds are put are called
application funds. Following are some of the
purposes for which, funds may be used.
PURCHASE OF FIXED ASSETS:
Purchase of fixed assets such as land, plant,
machinery, long-term investments etc., and result in
decrease of current assets without any decrease in
current assets without any decrease in current
liabilities. Hence there will be a flow of funds.
PAYMENT OF DIVIDENDS:
Payment of dividends results in decrease of a
fixed liability and therefore, it affects funds.
PAYMENT OF FIXED LIABILITY:
Payment of long-term liability, results in
reduction of working capital and hence it is taken as
an application of fund.
SOURCES AND EMPLOYMENT OF BANK
FUNDS PAID – UP CAPITAL ANS RESERVES:
The paid – u capital and cash reserved of a
commercial bank constitute by far the most
dependable source of bank liquidity. The paid-up
capital comprises of the cash amount contributed in
cash by public on their shares to the bank. The paid –
up capital is less than authorized capital and it is
either equal to or less than the subscribed capital.
Authorized capital is the maximum, which a bank can
issue for public subscription under its Memorandum
of Association. Generally, the board of Directors of a
bank does not issue the entire authorized capital for
subscribed by the public. If the entire subscribed
capital is not paid-up capital. A part of the subscribed
capital may be paid subsequently, when asked by the
