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BRILLIANT’S Fund Flow Statement 69

Two most commonly used measures of the ’§$S²>g eãX Ho$ Xmo g~go gm‘mݶ ê$n go Cn¶moJ {H$¶o
term funds are "cash" and "working capital". OmZo dmbo Cnm¶ ''H¡$e'' VWm ''d{Hª$J H¡${nQ>b'' h¢& Bg
Thus, two statements are prepared i.e., àH$ma Xmo ñQ>oQ>‘|Q> V¡¶ma {H$¶o OmVo h¢ AWm©V²
 The statement of changes in the working  d{Hª$J H¡${nQ>b (’§$S> âbmo ^r H$hbmVm h¡) ‘| n[adV©Zm|
capital (also known as the fund flow); and H$m ñQ>oQ>‘|Q> VWm
 The statement of changes in cash (also  H¡$e (H¡$e âbmo ñQ>oQ>‘|Q> ^r H$hbmVm h¡) ‘| n[adV©Zm|
known as the cash flow statement). H$m ñQ>oQ>‘|Q>&

Note: This chapter aims to illustrate and ZmoQ>… Bg MoßQ>a H$m CÔoí¶ ’§$S> âbmo ñQ>oQ>‘|Q> V¡¶ma
explain the technique of preparing a fund flow
H$aZo H$s VH$ZrH$ H$m dU©Z H$aZm VWm g‘PmZm h¡& H¡$e
statement. The cash flow statement is discussed
âbmo ñQ>oQ>‘|Q> H$s BH$mB© 2.2 ‘| MMm© H$s J¶r h¡&
in Unit 2.2.
Concept of Funds and Flow ’§$S²>g VWm âbmo H$s AdYmaUm
The term "Funds" in the context of the ’§$S²>g âbmo ñQ>oQ>‘|Q> H$s V¡¶mar Ho$ n[aàoú¶ ‘| ''’§$S²>g''
preparation of funds flow statement refers to eãX Hw$b d{Hª$J H¡${nQ>b H$m g§X^© XoVm h¡ AWm©V² H$a§Q>
net working capital i.e. the difference between
AgoQ²>g VWm H$a§Q> bm¶{~{bQ>rO Ho$ ~rM A§Va& ZoQ> d{Hª$J
current assets and current liabilities. The net
working capital view is widely accepted by H¡${nQ>b {dMma H$mo Vm{H©$H$ H$maUm| go ’$m¶Z|{e¶b EZm{bñQ²>g
financial analysts and business executives for VWm {~OZog E³Or³¶y{Q>ìg Ûmam ì¶mnH$ ê$n go ñdrH$ma
logical reasons. {H$¶m OmVm h¡&
The term "Flow" means movement or ''âbmo'' eãX H$m AW© ‘yd‘|Q> ¶m n[adV©Z h¡& Bg
change. Thus the term "flow" of funds means àH$ma ''’§$S²>g âbmo'' H$m AW© ’§$S²>g ‘| n[adV©Z h¡&
change in funds.
Viewed from the perspective of the ’§$S²>g H$s d{Hª$J H¡${nQ>b AdYmaUm Ho$ n[aàoú¶ go
working capital concept of funds, the flow of ’§$S²>g âbmo H$m AW© d{Hª$J H¡${nQ>b ‘| n[adV©Z h¡& BgH$m
funds means changes in working capital. This AW© h¡ {H$ d{Hª$J H¡${nQ>b AH$mC§Q²>g Ho$ ~rM {d{eï> ê$n
means that transactions exclusively between go hþE Q´>m§Oo³e§g, d{Hª$J H¡${nQ>b ‘| n[adV©Z Zht H$aVo h¢
working capital accounts do not change the net VWm Bg{bE ''’§$S²>g H$m âbmo'' gpå‘{bV Zht H$aVo h¢&
working capital and so do not involve in a "flow
of funds". Flow of funds take place when a ’§$S²>g H$m âbmo hmoVm h¡ O~ EH$ Q´>m§Oo³eZ EH$ H$a§Q>
transaction affects one current account and the AH$mC§Q> H$mo à^m{dV H$aVm h¡ VWm Xÿgam Zm°Z-H$a§Q>
other non-current account and vice versa. AH$mC§Q> hmoVm h¡ VWm BgH$m {dnarV ^r hmoVm h¡&
Hence change in working capital involves AV… d{Hª$J H¡${nQ>b ‘| n[adV©Z ’§$S²>g Ho$ BZâbmo
inflow and outflow of funds. VWm AmCQ>âbmo H$mo gpå‘{bV H$aVm h¡&

Fund Flow Statement ’§$S> âbmo ñQ>oQ>‘|Q>
The basic purpose of the fund flow ’§$S> âbmo ñQ>oQ>‘|Q> H$m àmW{‘H$ CÔoí¶ EH$
statement is to provide information about the Am°J}ZmBOoeZ ‘| ’§$S²>g Ho$ BZâbmo VWm AmCQ> âbmo Ho$ ~mao
inflow and outflow of funds in an organization. ‘| gyMZm àXmZ H$aZm h¡&
The fund flow statement is basically ’§$S> âbmo ñQ>oQ>‘|Q> ‘yb ê$n go ¶h g‘PmZo go g§~§{YV
concerned with explaining why a firm's net h¡ {H$ ³¶m| EH$ g§ñWm H$s ZoQ> d{Hª$J H¡${nQ>b (H$a§Q>