Identifying inflow/outflow (source/application) of funds from changes in Balance Sheet figures

To prepare a funds flow statement, we need the information relating to the non-current area of the balance sheet at two points of time. The analysis we make from that information would be relating to the period between the two dates.

Balance Sheet of M/s ___
Liabilities	As on 31st December		Assets	As on 31st December
Liabilities	2004	2005	Assets	2004	2005
Share Capital Profit and Loss Appropriation account Long Term Loan Sundry Creditors Bills Payable	10,000 5,000 4,000 8,000 5,000	15,000 8,000 6,000 12,000 3,000	Cash Debtors Stock Machinery Land	5,000 10,000 10,000 3,000 4,000	8,000 15,000 12,000 5,000 4,000
	32,000	44,000		32,000	44,000

From the information relating to the non-current area from the balance sheet figures on 31^st Dec 2004 and 31^st Dec 2005, we would be able to prepare a funds flow statement for the period between 31^st December 2004 and 31^st December 2005 i.e. for the year 2005.

• Identify the accounts within the current area and the non-current area distinctly

Balance Sheet of M/s ___
Liabilities	As on 31st December		Assets	As on 31st December
Liabilities	2004	2005	Assets	2004	2005
Share Capital Profit and Loss Appropriation account Long Term Loan Sundry Creditors Bills Payable	10,000 5,000 4,000 8,000 5,000	15,000 8,000 6,000 12,000 3,000	Cash Debtors Stock Machinery Land	5,000 10,000 10,000 3,000 4,000	8,000 15,000 12,000 5,000 4,000
	32,000	44,000		32,000	44,000

Current, Non-Current

• Prepare the statement/schedule of changes in working capital

With the accounts within the current area, we make up a schedule/statement of changes in working capital.

Though the statement is not a requisite for analysing funds flow or making up the funds flow statement, it would help in cross checking the accuracy of the results.

Both the statement of changes in working capital and the funds flow statement give the change in working capital (fund) as the residue figure.

Schedule/Statement of Changes in Working Capital for the period from __ to __
Particulars/Account	Balance as on 31^st December		Working Capital Change
Particulars/Account	2004	2005	Increase	Decrease
a) CURRENT ASSETS 1) Cash 2) Sundry Debtors 3) Stock	5,000 10,000 10,000	8,000 15,000 12,000		3,000 5,000 2,000
TOTAL	25,000	35,000		10,000
b) CURRENT LIABILITIES 1) Sundry Creditors 2) Bills Payable	8,000 5,000	12,000 3,000	4,000	2,000
TOTAL	13,000	15,000	4,000	2,000
Working Capital [(a) - (b)]	12,000	20,000
TOTAL			4,000	12,000
Net Change in Working Capital				8,000

• Ascertain the cross transactions

Using the non current account balances, identify the cross transactions that have caused a change in fund (working capital). Depending on the information available, such identification can be done by

simple comparison of the two figures (balances) pertaining to each of the non-current accounts.
(Or)
drawing up ledgers for all the non-current accounts and ascertaining the reasons for changes if any.

• Prepare the funds flow statement

The last step would be building up the funds flow statement from the information relating to the cross transactions ascertained as above.

n~7 t~5 «Note~8_Topic~1 » n~8 t~2