What is a Fund Flow Statement? Meaning, Format & Purpose

A Fund Flow Statement is a financial document that shows how funds were sourced and where they were applied between two balance sheet dates. It helps track working capital movements over a specific accounting period.

Let’s understand it with the help of an example:

Ravi’s stationery shop in Jaipur was checked in April 2023. ₹3,00,000 in current assets and ₹1,00,000 in current liabilities were found. By March 2024, the assets had grown to ₹4,50,000, and the liabilities had dropped to ₹80,000. So, working capital had been raised from ₹2,00,000 to ₹3,70,000, a rise of ₹1,70,000.

To know how this ₹1,70,000 change had happened, a Fund Flow Statement was created. It was shown that ₹1,00,000 came from business operations, ₹30,000 from selling old shelves, and ₹40,000 from issuing shares.

This money was used to buy a new printer for ₹60,000, repay a loan for ₹70,000, and pay dividends for ₹40,000. The total inflow and outflow were both ₹1,70,000. In this blog, the meaning, format, and purpose of a Fund Flow Statement will be explained. 

What is a Fund Flow Statement?

It is a financial report that shows how money was brought in and how it was used between two balance sheet dates.

The Funds Flow Statement explains the changes in working capital, which is the difference between current assets and current liabilities. It tells whether the company’s money was used well or not.

By checking this statement, it can be seen whether more money came in (inflow) or was spent (outflow). Businesses, banks, and investors use it to understand if the company can pay its bills on time.

The question “What is a Fund Flow Statement?” is often asked in accounting, because it gives a clear view of how funds were managed during a certain period, mostly one year.

Why Fund Flow Statement Important?

The Fund Flow Statement helps track how a company raises and uses funds over a period. It’s essential for understanding long-term financial health and resource allocation.

Meena owned a small online saree store. In April 2023, her business had ₹1,50,000 in assets and ₹50,000 in liabilities. By March 2024, her assets rose to ₹2,20,000, while liabilities came down to ₹40,000.

Working capital had increased from ₹1,00,000 (₹1,50,000 – ₹50,000) to ₹1,80,000 (₹2,20,000 – ₹40,000). A Funds Flow Statement was prepared. It was shown that funds came from good sales, old stock was sold, and a loan was taken. That money was used to buy new fabric, pay off debt, and give discounts.

Meena said with joy, "Bade bade shehron mein aisi chhoti chhoti baatein hoti rehti hain," as she finally understood how cash and profits were not the same.

Read More – What is Cash Flow? Types, Importance & Real-Life Example

Impact of Changes in Assets on Fund Flow
 

The Funds Flow Statement is very important for:
 

• Liquidity Check – It shows if money is available for regular use.
   
• Credit Decisions – Banks check this before giving loans.
   
• Better Planning – Managers use it to plan how to use funds in the future.

What is the Funds Flow Statement Analysis?

Funds Flow Statement analysis is done to compare two balance sheets, usually one from the start of the year and one from the end. This helps to explain how money was managed during that time.

When this analysis is done, it is checked:

• Where do funds come from?
   
• Where were they used?
   
• If working capital increased or decreased?

In Rakesh’s mobile repair shop, assets were changed, and loans were paid off. His balance sheets from 2023 and 2024 were compared. It was found that old equipment was sold, and new machines were bought. Money also came from a business loan.

This analysis helped Rakesh understand his fund movements. He was surprised and said, “Main aaj bhi phenke hue paise nahi uthata,” when he saw that small changes had big effects on his funds.

Impact of Changes in Liabilities on Fund Flow
 

How is a Fund Flow Statement Prepared?

The Fund Flow Statement is prepared in three steps. It helps explain changes in working capital using simple calculations. Each step must be done properly.

Step 1: Statement of Changes in Working Capital

Working capital is found by subtracting current liabilities from current assets.

Formula:
Working Capital = Current Assets – Current Liabilities

Example:
Pooja’s home bakery had ₹2,00,000 in assets and ₹1,00,000 in liabilities in 2023. In 2024, assets increased to ₹2,50,000 and liabilities dropped to ₹90,000.

So, working capital increased from ₹1,00,000 to ₹1,60,000.

Example of Changes in Working Capital

Pooja’s working capital was increased by ₹60,000. This increase was recorded in the Funds Flow Statement.

Step 2: Funds from Operations

Funds from business activities are added. Non-cash items like depreciation are adjusted.

Formula:
Funds from Operations = Net Profit + Non-Cash Expenses – Non-Operating Income

Example:
Ravi Ltd. earned ₹1,00,000 in profit. ₹20,000 depreciation was added. ₹10,000 income from selling assets was subtracted.

Funds from Operations = ₹1,00,000 + ₹20,000 – ₹10,000 = ₹1,10,000

Step 3: Final Fund Flow Statement

All the fund movements are brought together, money in and money out.

Sample Funds Flow Statement