Notes, Exercises, Videos, Tests and Things to Remember on Funds Flow Statement
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Statement of changes in financial position refers to the statement which is prepared on the basis of all financial resources like capital, assets, and liabilities. This statement measures the changes that have taken place between two balance sheet dates in the financial position of a concern. The changes in the financial position may occur while dealing with following transactions:
In simple words, this statement summarizes all the sources from which the funds have been obtained and the uses to which and where they have been applied. The changes in the financial position could be related to several different concepts of funds. The 2 major usages are Working capital funds i.e. Working capital basis (Funds Flow Statement) and Cash funding i.e. Cash basis (Cash Flow Statement).
Funds flow statement is the statement that shows the various sources from where the funds have been collected, within a certain time period along with their uses during that period.In simple words, funds flow statement explains about the various sources and application of funds. Thus, funds flow statement is an important tool for financial analysis as it presents a firm with the information on the inflow and outflow of funds of the firm during a financial year.
According to R. N. Anthony," The funds flow statement describes the sources from which additional funds were derived and the uses to which these funds were put."
Working capital is the difference between current assets and current liabilities. Current assets are those assets which are convertible into cash without any negative effect on their value, within a year or a short time period. Some examples of current assets are bank balance, debtors, inventories/ stock, accrued income, bills receivable, etc. On the other hand, current liabilities are the outsiders’ obligation which must be paid within a short notice like bills payable, bank overdraft, short term loan, creditors, etc.
The format of Statement of Changes in Working capital is shown below:
Note: Provision for taxation and proposed dividend are regarded as current liabilities if additional information is not given.
Short term investment
Required: Statement of Changes in Working Capital.
Koirala, Madhav et.al., Principles of Accounting -XII, Buddha Prakashan, Kathmandu
Shrestha, Dasharatha et.al., Accountancy -XII, M.K. Prakashan, Kathmandu
Bajracharya, Puskar, Principle of Accounting-XII, Asia Publication Pvt. Ltd., Kathmandu