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Funds Flow and Cash Flow Statements

Funds means the net working capital and the term fund flow indicates the inflows and outflows of funds during a particular accounting period. It is prepared to indicate the increase in the cash resources and the utilization of such resources of a business during the accounting period. Like wise, cash flow means also inflow and outflow of cash transaction in a particular period of time. In cash flow there are three stage which are operating, investing and financing activities.
 Cash/Fund from operation
                                            Sales are main sources of inflow of fund into the business as they increase current assets but at the same time funds flow out of business for expenses and cost of goods sold. Thus the net effect of operations will be a source of funds if inflow from sales exceeds the outflow of expenses and cost of goods sold and vice-versa. But it must be remembered that funds from operation do not necessary mean the profit as shown by the profit and loss account of a firm because there are many non-fund of non-operating items which may have been either debited of credited to profit and loss account. The funds from operation can be computed using two methods. Direct method and indirect method.

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