1. Meaning (Fund flow statement)
It is a statement which shows the movement of funds into or out of business. In other words , it is a sources and application of funds. The term ‘funds’ here refer to ‘Net working capital’ which is ascertained by taking out the difference between current asset and current liabilities. FFS is also known as “Statement of Sources and Application of Funds”.
ACC TO ANTHONY: FFS describe the sources from which additional funds were derived and the use to which these funds were put.

2. IMPORTANCE OF FFS : 1.Helps in analysis of financial statements
2.Throws light on perplexing questions
3.Helps in the formulation of dividend policy
4.Helps in the proper allocation of resources
5.Acts as a future guide
6.Helps appraising the use of working capital
7.Helps knowing the credit worthiness

3. NON-CURRENT LIABILITIES
FLOW OF FUNDS
CURRENT ASSETS
CURRENT LIABILITIES
NO FLOW OF FUNDS
FLOW OF FUNDS
FLOW OF FUNDS
FLOW OF FUNDS
NO FLOW OF FUNDS
NON-CURRENT ASSETS
NON-CURRENT LIABILITIES

4. WHEN FLOW OF FUNDS TAKE PLACE ?
Flow of funds take place whenever any transaction brings the change in working capital. If the transaction results in the increase of amount of working capital it is known as “Source of funds” and if the transaction results in the decrease of amount of working capital it is known as “Application of funds”. To determine as to whether a particular transaction has resulted in the flow of funds or not , the following steps should be followed:
STEP 1: Pass journal entry for the concerned transaction .
STEP 2: Classify the accounts involved into current and non-current.
STEP 3: Determine whether there is a flow of funds or not as follows:

5. STEPS INVOLVED IN PREPRATION OF FFS
If all the accounts involved in the transaction are current (there is no flow of funds)
If all the accounts involved in the transaction are non current (there is no flow of funds)
If one of accounts involved is current and another non current (there is flow of funds)
STEPS INVOLVED IN PREPRATION OF FFS
STEP 1: Collect balance sheet of two periods:
e.g. if want to prepare fund flow statement for the last year ended 31st March,07 , we need balance sheet of two periods i.e. (i)balance sheet as on and (ii)balance sheet as on
STEP 2: "Prepare “schedule of changes in working capital”:
With the help of current assets and current liabilities as follows:

6. Particulars
Previous Year
Current year
Effect on working capital (increase)
Effect on working capital (decrease)
Current assets:-
----
Cash/Bank
_ _ _ _
Stock
Debtors
Bill receivable
Prepaid Expenses
Accured Income
Short –term /marketable investment ect
Total (A)
******
Current Liabilities:-
Creditors
Bills payable
Outstanding Expenses
Bank Overdraft
Income Received in advance etc.
Total (B)
Working capital [(A)-(B)]
Net increase or decrease in working capital

7. STEP 3: Prepare “Fund Flow Statement”:
The last step is to prepare fund flow statement with the help of non-current assets and non-current liabilities as follows:
Sources
Rs.
Applications
Funds from operations
******
Funds Lost in operations
Sales of fixed Assets
Purchase of fixed assets
Sale of investments
Purchase of Investments
Issue of shares
Redemption of preference shares
Issue of Debentures
Redemption of debentures
Raising of long term loans
Repayment of long term loans
Non- operating incomes
Payment of Dividend/Tax
Net decrease in working Capital
Net Increase in Working Capital

8. Difference Between Fund Flow Statement and Balance sheet
Basis
Funds Flow Statement
Balance sheet
1. Meaning
It is the statement which shows the movement of funds into and out of business.
It is the statement which shows the financial position of business on a particular data.
2. Objectives
To find out the reasons for change in working capital.
To show the financial position of business on a particular date.
3. Nature
Dynamic
Static
4. Format
No specific format prescribed by companies Act.
Specific format Prescribed by companies Act,1956.
5. Sources
Prepared from the balance sheet of two dates
Prepared from the trail balance.
6. Users
Internal party i.e. Management
External parties i.e. investors, creditors , income tax department.
7. Legal obligations
No legal obligations
Every company is legally bound to prepare its balance sheet at the end of every financial year.

9. Treatment of Proposed Dividend
There are two different ways of treating this item.
1. When Proposed Dividend is treated as Current Liability:-
In this case. Proposed dividend will appear only in the ‘Schedule of working capital’.
2. When Proposed Dividend is treated as Non Current Liability :-
In this case , Proposed dividend for current year will appear on the debit side of ‘Adjusted Profit & Loss A/c’ and proposed dividend for the previous year will be shown on the applications side of ‘Funds Flow Statement’.

10. Treatment of Provision For Taxation
There are two ways of treating this item:- 1. When Provision for Taxation is treated as Current Liability :- In this case , Provision for taxation will appear only in the ‘Schedule of change in the working capital’. 2. When Provision for taxation is treated as Non Current Liability:- In such a case, Firstly ‘provision for Taxation Account ‘ is prepared as follows to find out the missing information. Provision For Taxation Account
Rs.
To Bank A/c
By Balance b/d
*******
(Tax paid during the year)
******
By Adjusted Profit & Loss A/c
To Balance c/d
(Provision made during the year)