Fund Flow Statement Format

The fund flow statement summarizes the source of funds and the application of funds, compares the balance sheets of two different dates, and analyzes where the company has earned money and where the company has spent money.

Thus, the format helps in getting a clear understanding of the fund inflow and outflow, which are considered to be important information to evaluate the financial position of the business and any deviations or anomalies from the plans or projections. This is equally useful for the management and all stakeholders of the company.

• The fund flow statement outlines the funds' sources and applications and compares the balance sheets of two dates. Then, analyze where the company has earned and spent money.
• Statement of changes in the working capital, funds from operations, and fund flow statement are the three parts of the fund flow statement format.
• It is based on historical data and helps the management make future decisions. Still, the administration cannot wholly rely on making decisions considering only the fund flow statement because it examines only the fund-based items.

The fund flow statement format is a layout that compares the balance sheets of the current and the previous year to understand and analyse the flow of funds of the different accounting periods. This comparison helps us to assess from which source the funds are coming and how efficiently they are being utilized.

Such information in a format of fund flow statement points out any loopholes and misutilization of money within the business and prevents financial downfall in an unexpected way. The management can track whether the money is being used as per the plans and strategies framed by then and look for any negative deviations that should be checked and controlled on time.

Thus, the working capital of the business is successfully tracked through this format. Working capital in a crucial component of any company since it provides the required funds for managing the daily business affairs like paying bills for office expenses, meeting the accounts payables or any short-term debts, arranging and maintaining the inventory etc. It evaluates the liquidity levels that can be used to meet the financial requirements.

Thus, this fund flow statement format in excel acts as a guide to analyse the movement of finance within the company and later frame policies and parameters that will help the management of the business to steer it towards a better and productive future.

The format of fund flow statement can be divided into three sections, as detailed below. It is necessary to understand what are the elements included in each part so that the format can be made correctly.

1. Statement of Changes in Working Capital: Working capital means the difference between the current assets and current liabilities. If there is an increase in working capital, then it will be an application of funds, and if there is a decrease in working capital, it will be a source of funds.
2. Funds from Operations: If the company earns a profit, it will be a source of funds, and if there is a loss, it will be an application of funds.
3. Fund Flow Statement: After ensuring the above two requirements, the firm will prepare the fund flow statement, which will comprise all outflow and inflow of funds.
   1. Source of Fund: It is used to know where funds have been arranged for investment. The source of the fund can be in the form of the issue of shares, debentures, profit from operations, dividends received on investments, proceeds from borrowings, etc.
   2. Application of Fund: It is used to know where the arranged funds have been invested. Application of funds can be in the purchase of fixed assets, increased working capital, purchase of investments, the dividend paid, repayment of borrowings, interest paid, etc.

In order to understand the statement fund flow statement format in excel properly, it is necessary to learn how to prepare it using the format and the financial data that we get from the financial statements and annual report of the company. Below is a detailed explanation of how we should proceed with the preparation as per the accounting rules.

#1 - Statement of Change in Working Capital

The statement of changes in working capital reflects how much the amount of working capital has changed. This is calculated by deducting the value of current liability that we get from the balance sheet, from the value of current asset, which is also available in the balance sheet.

The working capital can change significantly due to many factors. Sometimes the company management does not take into account the immediate short term fund requirements and keeps on investing funds for long term purpose, thus, making the value of current asset reduce considerably. This situation is risky and may result in unexpected delay and setback within the business. The company may also be very eager to pay dividend to gain shareholder’s faith, without accumulating money or profits for use within the business, bring down the working capital. Again, over lending or over borrowing, both are harmful and may affect the working capital negatively. 

#2 - Prepare a Statement of Fund From Operations

After preparing the statement of change in working capital, now we need to prepare a report of funds from operations:

In this statement, we will take the profit/loss from the profit & loss a/c. But then, we need to adjust profit/loss.

We prepare profit & loss accounts on an accrual basis. However, in this non-cash expenses like depreciation, bad debt, and any expenses written off are also considered for getting the actual profit or loss.

We will add back or less, as the case may be, those non-cash expenses, and we will get the cash profit/loss.

#3 - Prepare the Fund Flow Statement

Finally the step comes where the format for preparation of fund flow statement is used to make the document. The format is already specified in the article above. All the important sources of money and their areas of application will be considered and detailed over here. This part of working capital fund flow statement format is extremely important and useful for analysis and taking decisions regarding financial operations like investment in projects and expansion, issue of dividend to shareholders, borrowing of funds for business growth, etc. Overall this will decide the creditworthiness of the company.

Let us look at the example given below and understand how the format is prepared and used in an organization.

Now we will see the working capital fund flow statement format of the “statement of change in working capital.”

• In this format, there are two parts – current assets and current liabilities. We will take existing assets and current liabilities from the balance sheet on March 31, 2019, and March 31, 2018. Then calculate net working capital (after deduction of current liabilities from current assets). After that, compare the networking capital of both years and find out changes in working capital.
• In the below example, net working capital as of March 31, 2019, and March 31, 2018, is $12,000 and $5,500. Therefore for the current year, i.e., March 2019, the increase in working capital is $6,500.

In the below format, we have assumed the current year’s profit is $20,000. Then we have identified non-cash items which have been deducted in profit & loss a/c, which is $3,230, which is now added back to the current year's profit. As a result, a non-operating item added in the profit & loss account of $120 has been reduced from the current profit.

After adding and deducting non-cash or non-operating items, we will reach the position in which fund flow from operations can be derived, i.e., $23,110.

Last, we will prepare the fund flow statement.

• This statement will find out the sources and applications of funds.
• In the above example, we have seen that increases in working capital are $6,500 (considered as applications of funds), and the fund from an operation is $23,110 (considered a source of funds).
• Suppose we have issued share capital in the market amounting to $5,000 (considered a source of funds). Arranged source of the funds is used to enhance working capital and purchase fixed assets.

• With the help of a fund flow statement format, we can prepare the fund flow statement. The company prepares this statement to analyze the changes in working capital between two balance sheets. It is based on historical data. It helps the management make future decisions, but management cannot take the entire decision based on only the fund flow statement because it considers only fund-based items.
• Last, management should prepare this statement because it considers all sources, i.e., from where the funds are coming, and all applications, i.e., where the funds are going. This summarized statement helps management to move further.

The above are two different formats or financial concepts that are used to track and records the fund utilization process of the business. However, there are some differences between them, which are as follows.

• The former shows or reflects how much the working capital of the company has changed over a tome period, which may be two consecutive years. But the latter shows both inflow and outflow of the money during one particular financial year.
• Therefore, form the above point it is clear that the former is more about analysis regarding changes in funds whereas the latter is more about getting the data regarding the amount of fund.
• The former is used for long-term planning whereas the latter is used for short-term planning.
• The formers can reflect any changes, either positive or negative, in the financial condition because the data of two consecutive years are considered and compared. But the latter reflects the changes of the financial condition during the end of the year as compared to the beginning of the same financial year.
• The former shows the source and use of money and their critical evaluation but the latter shows the flow of money only.
• Another important difference is that the former is created on accrual basis, where transactions are recorded as and when they occur, not when the actual cash is exchanged. But the latter is done on cash basis, that is, transaction is recorded when cash flow takes place.

Thus, the above are some noteworthy differences between the two formats.

It has been a guide to what is Fund Flow Statement Format. We explain it with an example, differences with cash flow statement format & its 3 parts. You can learn more about it from the following articles –

• Free Cash Flow to Firm
• Free Cash Flow from EBITDA
• Cash Flow Statements Purpose
• What is Statement of Cash Flow?