What is a Funds Flow Statement? Sources/Inflow Applications/Outflow of Funds |
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What is a Funds Flow Statement? Sources/Inflow Applications/Outflow of Funds |
What is a Funds Flow Statement? |
Cross Transactions i.e. transactions involving a current account and a non-current account bring about a change in the fund or working capital. Some bring about an increase in fund and others bring about a decrease in the available fund (working capital).
The cross transactions presented in the funds flow statement are classified/grouped into two as,
Identifying Inflows/Outflows from changes in Non-Current Accounts |
Of all the transactions that take place in an organisation during a period, the number of transactions involving non-current accounts would be far lesser than the transactions involving current accounts.
Therefore, in identifying cross transactions it would be easier to look out for transactions involving non-current accounts and then looking out for cross transactions within them rather than going through all the transactions.
Inflow/Sources of Funds |
There will be an inflow, when, on account of the transaction, there is
| Balance Sheet of M/s __ as on 30th June __ | |||
|---|---|---|---|
| Liabilities | Amount | Assets | Amount |
| Non-Current Liabilities Current Liabilities | 89,00,000 15,00,000 | Non-Current Assets Current Assets | 80,00,000 24,00,000 |
| 1,04,00,000 | 1,04,00,000 | ||
From the above balance sheet,
| Working Capital | = | Current Assets - Current Liabilities |
| = | 24,00,000 - 15,00,000 | |
| = | 9,00,000 | |
| (Or) | = | Non-Current Liabilities - Non-Current Assets |
| = | 89,00,000 - 80,00,000 | |
| = | 9,00,000 |
| Dr. Bank a/c Cr. Land a/c | Current Asset Non-Current Asset | Increase Decrease |
After taking into account the affect of the above transaction,
| Current Assets (Changed) | = | Current Assets (old) + Increase |
| = | 24,00,000 + 5,60,000 | |
| = | 29,60,000 |
| Non-Current Asset (Changed) | = | Non-Current Asset (old) - Decrease |
| = | 80,00,000 - 5,60,000 | |
| = | 74,40,000 |
| Working Capital (Changed) | = | Current Assets (Changed) - Current Liabilities |
| = | 29,60,000 - 15,00,000 | |
| = | 14,60,000 | |
| (Or) | = | Non-Current Liabilities - Non-Current Assets (Changed) |
| = | 89,00,000 - 74,40,000 | |
| = | 14,60,000 |
Working capital has changed from 9,00,000 to 14,60,000.
| Dr. Creditors a/c Cr. Investments a/c | Current Liability Non-Current Asset | Decrease Decrease |
After taking into account the affect of the above transaction,
| Current Liability (Changed) | = | Current Liabilities (old) - Decrease |
| = | 15,00,000 - 2,90,000 | |
| = | 12,10,000 |
| Non-Current Asset(Changed) | = | Non-Current Assets (old) - Decrease |
| = | 80,00,000 - 2,90,000 | |
| = | 77,10,000 |
| Working Capital (Changed) | = | Current Assets - Current Liabilities (Changed) |
| = | 24,00,000 - 12,10,000 | |
| = | 11,90,000 | |
| (Or) | = | Non-Current Liabilities - Non-Current Assets (Changed) |
| = | 89,00,000 - 77,10,000 | |
| = | 11,90,000 |
Working capital has changed from 9,00,000 to 11,90,000.
| Dr. Bills Receivable a/c Cr. Partners Capital a/c | Current Asset Non-Current Liability | Increase Increase |
After taking into account the affect of the above transaction,
| Current Assets (Changed) | = | Current Assets (old) + Increase |
| = | 24,00,000 + 85,000 | |
| = | 24,85,000 |
| Non-Current Liability (Changed) | = | Non-Current Liability (old) + Increase |
| = | 89,00,000 + 85,000 | |
| = | 89,85,000 |
| Working Capital (Changed) | = | Current Assets (Changed) - Current Liabilities |
| = | 24,85,000 - 15,00,000 | |
| = | 9,85,000 | |
| (Or) | = | Non-Current Liabilities (Changed) - Non-Current Assets |
| = | 89,85,000 - 80,00,000 | |
| = | 9,85,000 |
Working capital has changed from 9,00,000 to 9,85,000.
| Dr. Creditors a/c Cr. Debentures a/c | Current Liability Non-Current Liability | Decrease Increase |
After taking into account the affect of the above transaction,
| Non-Current Liabilities (Changed) | = | Non-Current Liabilities (old) + Increase |
| = | 89,00,000 + 4,00,000 | |
| = | 93,00,000 |
| Current Liability (Changed) | = | Current Liability (old) - Decrease |
| = | 15,00,000 - 4,00,000 | |
| = | 11,00,000 |
| Working Capital (Changed) | = | Current Assets - Current Liabilities (Changed) |
| = | 24,00,000 - 11,00,000 | |
| = | 13,00,000 | |
| (Or) | = | Non-Current Liabilities (Changed) - Non-Current Assets |
| = | 93,00,000 - 80,00,000 | |
| = | 13,00,000 |
Working capital has changed from 9,00,000 to 13,00,000.
Outflow/Applications of Funds |
There will be an outflow, when, on account of the transaction, there is
| Balance Sheet of M/s __ as on 30th June __ | |||
|---|---|---|---|
| Liabilities | Amount | Assets | Amount |
| Non-Current Liabilities Current Liabilities | 89,00,000 15,00,000 | Non-Current Assets Current Assets | 80,00,000 24,00,000 |
| 1,04,00,000 | 1,04,00,000 | ||
From the above balance sheet,
| Working Capital | = | Current Assets - Current Liabilities |
| = | 24,00,000 - 15,00,000 | |
| = | 9,00,000 | |
| (Or) | = | Non-Current Liabilities - Non-Current Assets |
| = | 89,00,000 - 80,00,000 | |
| = | 9,00,000 |
| Dr. Fixed Asset a/c Cr. Cash a/c | Non-Current Asset Current Asset | Increase Decrease |
After taking into account the affect of the above transaction,
| Current Assets (Changed) | = | Current Assets (old) - Decrease |
| = | 24,00,000 - 50,000 | |
| = | 23,50,000 |
| Non-Current Asset (Changed) | = | Non-Current Asset (old) + Increase |
| = | 80,00,000 + 4,00,000 | |
| = | 84,00,000 |
| Working Capital (Changed) | = | Current Assets (Changed) - Current Liabilities |
| = | 20,00,000 - 15,00,000 | |
| = | 5,00,000 | |
| (Or) | = | Non-Current Liabilities - Non-Current Assets (Changed) |
| = | 89,00,000 - 84,00,000 | |
| = | 5,00,000 |
Working capital has changed from 9,00,000 to 5,00,000.
| Dr. Fixed Asset a/c Cr. Bills Payable a/c | Non-Current Asset Current Liability | Increase Increase |
After taking into account the affect of the above transaction,
| Non-Current Assets (Changed) | = | Non-Current Assets (old) + Increase |
| = | 80,00,000 + 5,00,000 | |
| = | 85,00,000 |
| Current Liability (Changed) | = | Current Liability (old) + Increase |
| = | 15,00,000 + 5,00,000 | |
| = | 20,00,000 |
| Working Capital (Changed) | = | Current Assets - Current Liabilities (Changed) |
| = | 24,00,000 - 20,00,000 | |
| = | 4,00,000 | |
| (Or) | = | Non-Current Liabilities - Non-Current Assets (Changed) |
| = | 89,00,000 - 85,00,000 | |
| = | 4,00,000 |
Working capital has changed from 9,00,000 to 4,00,000.
| Dr. Long Term Loan a/c Cr. Bank a/c | Non-Current Liability Current Asset | Decrease Decrease |
After taking into account the affect of the above transaction,
| Current Assets (Changed) | = | Current Assets (old) - Decrease |
| = | 24,00,000 - 2,35,000 | |
| = | 21,65,000 |
| Non-Current Liability (Changed) | = | Non-Current Liability (old) - Decrease |
| = | 89,00,000 - 2,35,000 | |
| = | 86,65,000 |
| Working Capital (Changed) | = | Current Assets (Changed) - Current Liabilities |
| = | 21,65,000 - 15,00,000 | |
| = | 6,65,000 | |
| (Or) | = | Non-Current Liabilities (Changed) - Non-Current Assets |
| = | 86,65,000 - 80,00,000 | |
| = | 6,65,000 |
Working capital has changed from 9,00,000 to 6,65,000.
| Dr. Partners Capital a/c Cr. Bills Payable a/c | Non-Current Liability Current Liability | Decrease Increase |
After taking into account the affect of the above transaction,
| Current Liabilities (Changed) | = | Current Liabilities (old) + Increase |
| = | 15,00,000 + 1,20,000 | |
| = | 16,20,000 |
| Non-Current Liabilities(Changed) | = | Non-Current Liabilities (old) - Decrease |
| = | 89,00,000 - 1,20,000 | |
| = | 87,80,000 |
| Working Capital (Changed) | = | Current Assets - Current Liabilities (Changed) |
| = | 24,00,000 - 16,20,000 | |
| = | 7,80,000 | |
| (Or) | = | Non-Current Liabilities - Non-Current Assets (Changed) |
| = | 87,80,000 - 80,00,000 | |
| = | 7,80,000 |
Working capital has changed from 9,00,000 to 7,80,000.
Doesn't the Statement of Changes in Working Capital help in analysing funds flow |
It provides us the information relating to change in the values of the various current account balances by comparing the balance as on the first day (opening balance) with the balance on the last day (closing balance) of that period.
The aggregate value of the changes in the current accounts would give us the net change in working capital (fund) over the period.
The statement only provides the information relating to the magnitude of the fund before and after the flow along with the magnitude of change in the fund.
Funds flow analysis involves analysing the flow i.e. finding the reasons for the flow. This involves dealing with the actual transactions that have caused the flow.
The statement of changes in working capital does not provide any information relating to the actual transactions that have caused that change.
Of all the accounting transactions that have brought about a change in the current accounts, only cross transactions would be relevant in analysing funds flow.
To analyse funds flow using the information relevant to current accounts, we need consider all the accounting transactions that have affected current accounts and from among them we need to identify the cross transactions which have also brought about a change in the fund (working capital).
The magnitude of accounting transactions involving non-current accounts are generally far lesser compared to the accounting transactions involving current accounts.
Therefore, in analysing funds flow we try to identify the cross transactions using the changes in non-current accounts.
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