What is fund flow statement an importance

The basic financial statement, i.e., the balance sheet and profit and loss account or income statement of business, reveal the net effect of the various transactions on the operational and financial position of the company. The balance sheet gives us a summary of the assets and liabilities of an undertaking at a particular point of time. It reveals the financial status of the company. The assets side of a balance sheet shows the deployment of resources of an undertaking while the liability side indicates its obligations, i.e., the manner in which these resources were obtained. The profit and loss account reflects the results of the business operations for a period of time. It contains a summary of expenses incurred and the revenue realized in an accounting period. Both these statements provide the essential basic information on the financial activities of a business, but their usefulness is limited for analysis and planning purpose. The balance sheet gives a static view of the resources or liabilities of a business and uses or assets to which these resources have been put a certain point of time. It does not disclose the cause for changes in the assets and liabilities between two different point of time. The profit and loss account, in a general way, indicates the resources provided by operations. But there are many transactions that take place in an undertaking and which do not operate through profit and loss account. Thus, another statement has to be prepared to show the change in the assets and liabilities from the end of one period of time to the end of another period of time. The statement is called a statement of changes in financial position or a fund flow statement.

The fund flow statement shows movement of funds

The fund flow statement is a statement which shows the movement of funds and is a report of the financial operations of the business undertaking. It indicates various means by which funds were obtained during a particular period and the way in which these funds were employed. In simple words, it is a statement of sources and application of funds.

Assuming the role of a personal financial advisor

Increasingly, accountants also are assuming the role of a personal financial advisor. They not only provide clients with accounting and tax help, but also help them develop personal budgets, manage assets and investments, plan for retirement, and recognize and reduce exposure to risks. This role is a response to client demands for a single trustworthy individual or firm to meet all of their financial needs. However, accountants are restricted from providing these services to clients whose financial statements they also prepare. Persons planning a career in accounting should have an aptitude for mathematics and be able to analyze, compare, and interpret facts and figures quickly. They must be able to clearly communicate the results of their work to clients and managers. Accountants and auditors must be good at working with people, as well as with business systems and computers. At a minimum, accountants should be familiar with basic accounting software packages. Because financial decisions are made based on their statements and services, accountants and auditors should have high standards of integrity. Increased awareness of financial crimes such as embezzlement, bribery, and securities fraud will also increase the demand for forensic accountants to detect illegal financial activity by individuals, companies, and organized crime rings. Computer technology has made these crimes easier to commit, and it is on the rise. But, development of new computer software and electronic surveillance technology has also made tracking down financial criminals easier, thus increasing the ease and likelihood that forensic accountants will discover their crimes. As success rates of investigations grow, demand will also grow for forensic accountants. Proficiency in accounting and auditing computer software, or expertise in specialized areas such as international business, specific industries, or current legislation, may be helpful in landing certain accounting and auditing jobs. In addition, employers increasingly seek applicants with strong interpersonal and communication skills. Because many accountants work on teams with others from different backgrounds, they must be able to communicate accounting and financial information clearly and concisely. Regardless of one’s qualifications, however, competition will remain keen for the most prestigious jobs in major accounting and business firms.

Inflation is a state to inflation accounting

Inflation is a state to inflation accounting in which purchasing power of money goes down or conversely there is more money in circulation than is justified by goods and services. The effect of inflation is that prices of assets go up and the accounts prepared on the basis of conventional accounting system present much distorted figures to the users of accounts. Accountants prepare Profit and Loss Account and Balance sheet at historical costs. Profit is the difference between revenue and costs. Revenue reflects the current value whereas costs represent current as well as historical costs. Thus the profit is overstated measured in terms of money and the value of money is fluctuating due to inflation, any measurement with fluctuating scale is unreliable and would distort the true

financial position of the organization. In such cases to make the measurement perfect, the scale should be kept steady. If this is not possible, an alternative should be evolved to adjust the effects of fluctuating changes in money value and make the financial statements reflect current values in real terms. Management Accountant has responsibility towards shareholders and internal management of the organisation to appraise the true financial position of the organisation. Inflation Accounting devised to show the effect of changing cost and prices on affairs of a company during the course of relative accounting periods. It is also known as ‘Accounting for price level changes’.

Financial accounts are the basis on which the success of the business is measured and on which investors can find out whether or not their investment is safe and will produce a reasonable return for them. Financial accounts, therefore, have a significant effect on the business, and shareholders are particularly interested in them from the point of view of not only obtaining a good return on their investment but also of maintaining the value of that investment. But if this value is expressed in terms of historical costs, without allowing for the inspect of inflation, it could be illusory. Hence, the need for inflation accounting. The purpose of inflation adjusted accounting is to restore the principle of matching current revenues with current costs or current purchasing power to the Profit and Loss Account, thus removing the inflationary element from historic cost profit and/or allowing the concept of physical capital maintenance to be adopted. Inflation accounting is a system of accounting which regularly records all items in financial statements at their current values. The system recognizes the fact that the purchasing power of money is decreasing day-by-day during inflation and finds out profit or loss or states the financial position of the business on the basis of the current prices prevailing in the economy.

The finance function is centralized

The finance function is very vital for every type of business enterprise. There is need to setup a sound and efficient Organisation to achieve its goals. However, organization of finance function is not standardised one. It varies from enterprise to enterprise, depending upon its nature, size and other requirements. In small concerns, whose operations are simple and there is little delegation of authority no separate executive is appointed to handle finance function. It is the owner who performs all these functions himself. But in medium and large scale concerns, a separate department to organize all financial activities may be created at top level under the direct supervision of Board of Directors or a highly placed official. This function may be headed by a committee or a top management executive. All the important financial decisions are taken by the committee or the executive but routine decisions are left to the lower levels of management.

The finance function is centralized because of its importance. The financial decisions are crucial for the survival of the concern. Any bad decision on financial aspects will adversely affect the reputation of the concern. The centralization of finance function will result in certain economies in raising funds, purchasing of fixed assets etc.In large concerns, for organizing finance function, the controller and treasurer are appointed. Financial controller perform functions of planning and controlling, preparation of annual reports, capital budgeting, profit analysis, cost and inventory management, and accounting and payroll. The main functions of the treasurer includes raising of additional funds, cash management, receivables management, audit of accounts, protecting funds and securities and maintaining relations with banks and other financial institutions etc. Management audit is development in the field of audit. It was first used in the USA. It is a tool of management control. It is like periodical medical check up of the business to ensure sound and healthy business activities. It covers all areas of management like planning, organizing, co-ordination, control etc. it is an audit management’s overall performance. It assists at all level of management in the effective discharge of managerial functions.

The emergence and vigorous growth of Euro market

The emergence and vigorous growth of Euro market and their ability to create multiple deposite expansion without any apparent control mechanism have given rise to a number of concerns regarding their impact on international liquidity, on the ability of national monetary authorities to conduct and effective monetary policy and on the soundness of the international financial system. Among worries expressed are :

• The market facilitates short term speculative capital the so called hot money creating enormous difficulties for central banks in their intervention operations designed to stabilize exchange rates.
• National monetary authorities lose effective control over monetary policy since domestic residents can frustrate their efforts by borrowing or lending abroad. It is known that with fixed or managed exchange rates, prefect capital mobility makes monetary policy less effective. Euro markets contribute to increasing the degree of international capital mobility.
• The market is based on a tremendously large volume of inter bank lending. Further, euro banks are engaged in maturity transformation, borrowing short and lending long. In the absence of a lender of last resort a small crisis can easily turn into a major disaster in the financial markets.
• Euro banks create private international liquidity and in the absence of central coordinating authority they could create too much liquidity contributing to inflationary tendencies in the world economy.
• The market allow central banks of deficit countries to borrow for balance of payment purposes thus enabling them to put off needed adjustment measures.

Against these are to be set the obvious advantages of the markets such as more efficient allocation of capital worldwide, smoothing out the effects of sudden shifts in balance of payments imbalances the spate of financial innovations that have been created by the market which have vastly enhanced the ability of companies and governments to better manage their financial risks and so on.

Sound financial structure of the firm

The scope of Corporation finance emerged as a distinct field of study only in the early part of this century as a result of consolidation movement and formation of large scale business undertaking. In the initial stages of the evolution of corporation finance emphasis was placed on the study of sources and forms of financing the large size business enterprises. The grave economic recession of 1930’s rendered difficulties in raising finance from banks and other financial institutions. Thus emphasis was laid upon improved methods of planning and control, sound financial structure of the firm and more concern for liquidity. The post world war II era necessitated reorganization of industries and the need for selecting sound financial structure. In the early 50.s the emphasis shifted from the profitability to liquidity and from institutional finance to day to day operations of the firm.

The modern phases began in mid-fifties and the discipline of corporation finance has how become more analytical and quantitative. The techniques of models, mathematical programming and simulations are presently being used in corporation finance Corporation finance or broadly speaking business finance can be defined as the process of rising, providing and administering of all money or funds to be used in a corporate enterprise. Weeler define as “that business activity which is concerned with the acquision and conservation of capital funds in meeting the financial needs and overall objective of business enterprise.” Thus the scope of corporation finance is so wide as to cover the financial activities of a business enterprise right from its inception to its growth and expansion and in some cases to its winding up also

The normal price will be predetermined price

On the list of essential functions associated with managing sales will be aiding managerial command. Administration command is the procedure for analyzing overall performance in addition to, in case needed, utilize accurate actions to ensure that overall performance be held based on plan. Therefore, it is significant in order to plan in addition to price command. Normal pricing is often a process that allows your managing to control fees in addition to company operations. The idea aims at reducing squanders in addition to growing efficiency inside overall performance by means of starting requirements or even making price options. Price sales was formulated to satisfy the data requirements in relation to price. your personal reports can supply a historical information. Your ascertainment associated with price within the basic associated with historical data had been regarded practical at first.

The term Normal signifies a new table indicate or even yardstick. The normal price will be predetermined price that ascertains upfront what just about every product or service ought to price under offered situations. Within the phrases associated with Backer in addition to Jacobsen “Standard price is the total your companies perceives something or even your operations of a process pertaining to a period of time ought to price, relying on particular believed conditions associated with efficiency, financial conditions along with other personalities. ” Your a style of utilizing normal fees for the requirements associated with price command is recognized as normal pricing. Within the phrases associated with Brown leafy in addition to Howard, normal pricing may be establish because “ a technique associated with price sales that compares the typical price of each product in addition to services while using actual price to determine the efficiency of the operations to ensure that virtually any remedial actions may be considered instantly. ”