Funds are not only generated internally; they may be externally generated, and so the chapter finishes with a discussion of externally generated funds.
The aim of a cash flow statement should be to assist users: The statement therefore shows changes in cash and cash equivalents rather than working capital.
Survival of a business depends not only on profits but perhaps more on its ability to pay its debts when they fall due.
Such payments might include 'profit and loss' items such as material purchases, wages, interest and taxation etc, but also capital payments for new fixed assets and the repayment of loan capital when this falls due (e.g. This chapter is intended to provide an explanation of: "Cash flow" is one of the most vital elements in the survival of a business.
Once all sources and applications of funds are computed, they may be arranged in statement form so that we can analyse them better.
Now attempt exercises 3.2 and 3.3 Exercise 3.2 Source and application of funds I Given below are some different sources and applications of funds finance items purposely scattered for an Agribusiness Company K for the year ended 31 December 19X8.Exercise 3.3 Sources and applications of funds II Using the data and information in the annual reports (especially the balance sheet and income statements) of Cerial Marketing Board provided for 19: Funds (or capital) is a collective term applied to the assortment of productive inputs that have been produced.Funds may be broadly categorised into operating (or working) capital (difference between current assets and current liabilities), and ownership (or investment) capital.Indirect method cash flow statement Figure 3.1 shows a pro forma cash flow statement.Figure 3.1 Pro forma cash flow statement a) Cash in hand and deposits repayable on demand with any bank or financial institution.Prepare a cash flow statement for the year to 31 December 19X5.Although cash flow statements have now superseded statements of source and application of funds, funds flow statements may not disappear entirely.Thus, if a company sustains an operating loss before depreciation, funds are not provided regardless of the magnitude of the depreciation charges.Application of funds of a company usually include: To avoid double counting, we usually compute gross changes in fixed assets by adding depreciation for the period to net fixed assets at the ending financial statement date and subtract from the resulting amount the net fixed assets at the beginning financial statement date.Funds are generally quantified in monetary value terms.Funds use, especially borrowed capital, is usually influenced by many factors, namely: the alternative demands for it; the availability of credit as and when needed; the time and interest rate payable on it; the types of loans that might be needed to generate it; and the cost of funds and business ownership cost.