A funds flow statement is a financial statement that provides a summary of a company's sources and uses of funds during a specific period. It shows how a company's cash and cash equivalents have changed from the beginning to the end of the period.
Objectives of preparing a funds flow statement:
1. To explain the reasons for changes in a company's cash position.
2. To provide information on the company's ability to generate cash flows from operating activities.
3. To assess the company's financial health and liquidity.
4. To identify sources and uses of funds to help in effective financial planning and decision-making.
Preparation of funds flow statement includes the following steps:
1. Start with the opening balance of cash and cash equivalents.
2. Identify sources of cash inflows such as operating activities, investing activities, and financing activities.
3. Calculate the net cash inflow or outflow from each activity.
4. Calculate the ending balance of cash and cash equivalents.
5. Prepare the funds flow statement showing the changes in cash flow during the period.
Overall, a funds flow statement helps in understanding how a company generates and uses cash, and provides valuable insights into its financial condition and performance.
What is funds flow statement? What are its objectives? How is it prepared?
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