Objectives of fund flow statement

Fund Flow Statement: Definition

A fund flow statement reveals the periodic increase or decrease in a business enterprise's funds.

The statement reflects the efficiency of financial management staff in generating funds from various sources and applying them to generate income without sacrificing the company's financial health.

Fund Flow: Definition

The flow of funds refers to the transfer of economic value from one asset to another, from one equity to another, from one asset to equity, or from one equity to other assets (or a combination of any of these).

The term 'flow' indicates change, and hence, a fund flow refers to a change in funds or a change in working capital.

Funds flow into working capital from the sources of funds, which include trading profits, issue of shares and/or debentures, borrowings, sale of fixed assets, repayment of borrowings, payment of tax, dividends, and increase in working capital.

Hence, the difference between the sources and application of funds shows the net change in the working capital during the year/period.

It is only those items that

describe how cash flow statement is prepared under direct method

fund flow statement is prepared on the basis of