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Balance Sheet- Information relating to Funds |
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The Fund area of the balance sheet provides us the information relating to Funds. By Funds we mean items (Assets and Liabilities) which have a life span of over a year.
• A Single Balance Sheet
A single balance sheet provides the information relating to a specific date, generally the last day of the accounting period. Where the balance sheet has been prepared by grouping information as in the case of "Balance Sheet in a form suitable for financial analysis", we would be able to derive the information relating to Liquid Assets, Current Assets, Current Liabilities/Provisions, Fixed Assets, Other Assets, Long Term Liabilities and Share Capital from the balance sheet itself.
This enables us to have an understanding of the funds within that Balance Sheet.
We may not be able to derive the extracted information such as Working Capital, Net Assets, Total Capital Employed, Share Holders Net Worth, Equity Share Holders Net Worth, Non-Assets (Asset side items not to be considered as fixed assets) straight away from the balance sheet. If we need them, we may have to derive them using the figures available in the Balance Sheet. • Balance Sheet with previous period figures
A balance sheet with the figures pertaining to the previous period enables us to have an understanding on the position of the business as on the date of preparation of the balance sheet as well as the date of the previous balance sheet.
In addition to providing all the information pertaining to the current period, this would also enable us to compare the current period figures to the previous period figures and have a comparative evaluation with respect to all the information that we can derive from the Balance Sheet. This also gives rise to a possibility to compare the extracted information such as Working Capital, Net Assets, Total Capital Employed, Share Holders Net Worth, Equity Share Holders Net Worth, Non-Assets (Asset side items not to be considered as fixed assets) pertaining to the two periods. • Limitation - Absence of information relating to Flow
The data relating to two different balance sheets, enables us to assess the quantum (amount) of change over the two periods (as shown in the following statement).
The above information on its own is useful to a limited extent. It helps in understanding what changes have occurred over the two balance sheets and to what quantum. There is one another important information that can be derived from this information and that is relating to Flow of Funds. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
What is Funds Flow? |
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• Flow
Meaning
Synonyms = Stream, Gush, Course • Funds Flow
By Funds flow (in accounting and financial management) we mean the flow in relation to the various items that form part of the Fund Area in a Balance Sheet. The Funds Flow explains how the values changed from the initial figure to the final figure between the two balance sheet dates. Flow is between two points and the two points in a Funds Flow Analysis are the beginning and the ending dates as indicated by the two balance sheets.
The flow (changes) is interpreted in two directions/ways. Funds flowing in and flowing out of the organisation » Inflow (Or) Source of Fund
Where the change in the value of a Fund Account (Asset or Liability) results in the availability of additional funds we say there is an inflow of fund and the change forms the source of fund. The source of fund is an explanation for how we are getting the funds.
Thus, the following would result in an inflow of funds
» Outflow (Or) Application of Fund
Where the change in the value of a Fund Account (Asset or Liability) results in the reduction of available funds, we say there is an outflow of fund and the change forms the application of fund. The application of fund is an explanation for how we are utilising the funds.
Thus, the following would result in an inflow of funds
The changes as revealed by the balance sheets of the two periods would be
• Decrease in Accumulated Losses - Inflow !!
Consider this explanation based on the logic that a decrease in fund assets would result in an inflow of funds. This results in an inflow of funds which are a part of Funds From Operations about which we will learn in the subsequent notes.
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Funds Flow Statement |
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A statement presenting the information relating to the inflow and outflow of funds or the sources and applications of funds is what is called a Funds Flow Statement.
The Funds flow statement is presented in two different forms (a) As a Statement and (b) in 'T' form. • As a Statement
Since the Change is positive, there is a Net increase in Working Capital • In a T Form
Since the Sources/Inflows are more, there is a Net increase in Working Capital This statement is identified using different titles as
Note
Sources/Inflow − Applications/Outflow = Change in Working Capital - How?. Please read the following page.
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| Author Credit : The Edifier | ... Continued Page 5 |
