30 October 2008
FUNDS: It refers to the working capital of a business
CASH FLOW STATEMENTS A cash flow statement shows changes in cash position from one period to another. The term cash refers to both cash and bank balances. The change in cash position from one period to another is computed by taking into account of sources and application of cash.
PREPARATION OF CASH FLOW STATEMENTS
Opening balances Cash Balance xxx Bank Balance xxx XXX
ADD SOURCES OF FUNDS Issue of shares xxx Raising long term loans xxx Sale of fixed assets xxx Short-term borrowings xxx Cash from operations xxx
TOTAL CASH AVAILABLE XXX
LESS APPLICATION OF FUNDS Redemption of redeemable preference shares xxx Redemption of long term loans xxx Purchase of fixed assets xxx Decrease in deferred payment liabilities xxx Cash out flow on account of operation xxx Tax paid xxx Dividend paid xxx Decrease in unsecured loans and deposits etc xxx
TOTAL APPLICATIONS XXX
Closing Balances Cash Balance Bank Balance XXX
FUND FLOW STATEMENTS The term flow means change and therefore the flow of funds means change in funds or change in working capital. In other words any increase or decrease in working capital means Flow of Funds.
PREPARATION OF FUND FLOW STATEMENTS
SOURCES OF FUNDS Issue of shares xxx Issue of debentures xxx Long term borrowings xxx Sale of fixed assets xxx Operating profits xxx Total sources XXX
APPLICATION OF FUNDS Redemption of redeemable preference shares xxx Redemption of debentures xxx Payment of other long term loans xxx Purchase of fixed assets xxx Operating loss xxx Payment of dividends, tax etc xxx Total uses XXX
Net increase/decrease in working capital (Total sources – total uses)
Note while preparing funds flow statements, current assets and current liabilities are to be ignored. Attention is to be given to changes in fixed assets and fixed liabilities.
The difference between cash flow and funds flow is cash flow analysis is concerned only with the changes in cash position while a fund flow analysis is concerned with changes in working capital.
CAclubindia
