Get to Know Rules and Format to Prepare Fund Flow Statement

This article will provide you with all the necessary steps, rules and format to follow in order to prepare funds flow statement along with the schedule of changes in working capital.

Steps to Follow For Preparing Funds Flow Statement:

Following are the steps need to follow in preparation of funds flow statement

1. Determine whether the working capital will increase or decrease in the near future.

2. Determine the adjustments required to be made to net income.

3. Determine the increase or decrease for each non-current account of the balance sheet. Analyze considering changes to decide whether the working capital will increase ( as a source) or decrease (utilize).

4. Ensure that the difference between the total of all sources including those from operations and the total of all uses calculates equals to the change found in working capital in Step 1.

Rules To Adhere For Preparing Funds Flow Statement:

Given below are the general rules should be obeyed while preparing for funds flow statement

1. Increase in a current asset signifies increase (plus) in working capital.

2. Decrease in a current asset indicates decrease (minus) in working capital.

3. Increase in a current liability signifies decrease (minus) in working capital.

4. Decrease in a current liability indicates increase (plus) in working capital.

5. Increase in current asset and increase in current liability keep working capital unaffected.

6. Decrease in current asset and decrease in current liability left working capital unaffected.

7. Changes in fixed (non-current) assets and fixed (non-current) liabilities influence working capital.

Format to prepare Funds Flow Statement:

Following are the formats which can be used to prepare Funds Flow statement
1. Statement Form
2. T-form

Schedule of Changes in Working Capital:

Schedule of changes in working capital is another statement prepared by many business enterprises at the time preparing for funds flow statement. It is based on working capital. The schedule of changes in working capital statement let you know about the changes in each individual current assets and current liabilities accounts (items) as well. The schedule of changes in working deficits increase and decrease in working capital which remains equal to the amount of changes in working capital found by funds flow statement. Whereas to prepare the schedule of changes in working capital one can consider the comparison of the current assets and current liabilities at two periods. Gen Balance sheet software is one of the most popular Balance sheet Preparation Software that is quick and easy to prepare Cash Flow & Fund Flow Statement with Gen BAL Software. The software also does ratio analysis with complete reports on financial year as per the client’s requirements.

The Schedule of Changes in Working Capital Uses The Following Formats.

Illustration:

The balance sheet of a company for the years 2012 and 2013 and the income statement for the year 2013 are provided here.

The statement provided above is a two parts statement wherein firstly the sources are detailed and then totalled, further it offers detailed information and total for uses. The changes in working capital are equal to the difference between the sources of funds and use of funds.

The sources of funds (working capital) in the above statement is classified into two parts; the first part consists of data related to sources from operations while the second part presents other sources. In the above statement, the working capital does not utilize as for any operations likewise salaries and rent, because the funds flow statement incorporated these entities automatically with the net income rather than with revenue. Whereas, the funds were used commonly for the firm’s investment activities such as the purchase of the new equipment, declaration of dividends, or payment of long-term liabilities.

The schedule of changes in working capital can be prepared using figures given in the illustrations as follows: