Accounting - Fund Flow Statement, Study notes of Accounting

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Fund Flow Concept

Fund ----Broader----Working Capital----

Fund Flow Statement

Fund----Narrower----Cash Balance----

Cash Flow Statement

Flow

Inflow---Increase-----Sources of Fund----If

a transaction increases the WC---credit

Outflow---Uses/Application---------------If

a transaction decreases the working

capital----debit

Sources of Information BS--------------------- Income Statement Statement of Retained Earnings Supplementary information

Procedural Framework  (^) Schedule of Changes in wc  (^) Funds from operations  (^) Preparation of ledger account  (^) Statement of sources and application (fund flow statement)

Sources Applications

Long term loans Payment of loans

Sale of assets/investment Purchase of

asset/investment

Funds from operation Operational loss

Issue of share capital and

debenture

Redemption of share

capital/debenture

Income from dividends Payment of tax/dividend

Fund Flow Statement

Funds from operation = Net profit

• Depreciation/capital expenditure written of
• provision of tax/dividend
• loss on sale of fixed asset/investment -gain on sale of asset/investment -dividend received on investment

cont

2. Provision of taxation ( as non current item) Considered as appropriation of profits and thus a non current liability Ist adjustment in funds from operation by adding the amount paid this year  2 nd^ adjustment is the actual application of tax in the fund flow statement as an application

cont 3.Proposed dividend Same treatment as provision for tax

cont 5.Depreciation Non fund item Simply a book entry without cash flow Adjusted in the funds from operation by adding in the net profit because it is a charge against profits Same treatment for goodwill written of

cont

6. Creation of reserve Appropriation of profits 9created out of profits) No flow of fund Adjustment in funds from operation