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.
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