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Funds Flow Statement

A Funds Flow Statement is a financial report that shows the movement of funds within a business during a specific period. It explains how funds were generated and how they were used, highlighting changes in working capital. Unlike the income statement, which focuses on profits, or the balance sheet, which shows financial position at a point in time, the funds flow statement emphasizes the sources and applications of funds, helping businesses and lenders understand cash movement and financial health.

Objectives of Funds Flow Statement

The main objective of a funds flow statement is to provide a clear picture of how an organization manages its funds. It helps identify where money is coming from (sources) and where it is going (uses), making it easier to track liquidity, working capital changes, and overall financial efficiency. For lenders, it ensures that the business is managing its funds responsibly and can meet repayment obligations. For businesses, it serves as a tool for better financial planning and control.

Benefits of Funds Flow Statement

*Shows sources and uses of funds clearly.	*Builds confidence for lenders and investors.
*Helps track changes in working capital.	*Detects financial strengths and weaknesses.
*Assists in financial planning and budgeting.	*Supports better resource allocation.
*Improves decision-making for investments and loans.	*Useful for comparing performance across periods.
*Highlights liquidity position of the business.	*Ensures transparency in fund management.

Types of Funds Flow Statement

STATEMENT OF CHANGE IN WORKING CAPITAL

The Statement of Changes in Working Capital shows the increase or decrease in current assets and liabilities during a period. It explains whether funds are tied up in operations or released for other uses. This helps assess short-term liquidity and efficiency.

STATEMENT OF SOURCES AND APPLICATIONS OF FUNDS

The Statement of Sources and Applications of Funds explains where funds came from (sources) such as profits, loans, or asset sales, and how they were used (applications) like debt repayment, asset purchase, or dividends. It highlights fund movement beyond day-to-day operations and supports long-term financial planning.

CAPITAL FUNDS FLOW STATEMENTS

The Capital Funds Flow Statement tracks movements in long-term funds such as equity, reserves, and long-term loans. It shows how capital is raised and where it is invested, helping assess a companyâ€™s financial structure and long-term stability.