The fund flow statement reports the flow of funds through the firm during the year. In order to prepare fund flow statement proper understanding of working capital and sources and applications is necessary. The fund flow statement is a record, a post-mortem of where the funds came from and how these were utilized during the year. The fund flow statement attempts to explain the change in financial position from one balance sheet to the subsequent balance sheet in terms of change in the funds or the working capital position of the firm.
According to R.N. Anthony, “Fund flow is a statement prepared to indicate increase in cash resources and the utilisation of such resources of a business during the accounting period.”
According to Smith Brown, “Fund flow is prepared in summary form to indicate changes occurring in terms of financial conditions between two different balance sheet dates.”
Objectives of Fund Flow Statement
The major objectives of fund flow statement are:
1. To help to understand the changes in assets.
2. To point out the financial strength and weaknesses of the business.
3. To inform as to how the funds of the business have been used.
4. It evaluates the firm’s financing capacity.
5. Fund flow statement helps in estimating the amount of finance required for completing its various projects.
6. This statement gives an insight into the evolution of the present financial position.