Statement/Schedule of changes in working capital

Information available from balance sheets pertaining to two periods

In statutory formats and in many cases we come across two balance sheets clubbed into one single statement giving us a comparative view of the figures pertaining to the two dates. One the last day of the current accounting period and the other the last day of the previous accounting period i.e. the first day of the current accounting period.

Stretch/Expand this balance sheet

Balance Sheet of M/s ___ as on 31st March 2007
LIABILITIES				ASSETS
Amount (Previous)	Particulars	Amount	Amount (Current)	Amount (Previous)	Particulars	Amount	Amount (Current)
12,00,000 7,00,000 20,00,000 15,00,000 18,00,000	EQUITY SHARE CAPITAL PREFERENCE SHARE CAPITAL RESERVES a) P/L Appropriation a/c b) Share Premium e) General Reserve LONG TERM LIABILITIES (1) Loans from Banks (2) Debentures CURRENT LIABILITIES/PROVISIONS (1) Sundry Creditors (2) Bills Payable (3) Bank Overdraft (4) Outstanding Expenses (7) Provision for Taxation (8) Provision for Dividends	8,00,000 6,00,000 9,00,000 8,00,000 8,00,000 11,00,000 4,00,000 2,50,000 1,00,000 3,00,000 2,50,000	15,00,000 9,00,000 23,00,000 16,00,000 24,00,000	37,00,000 28,00,000 7,00,000	FIXED ASSETS (1) Goodwill at Cost (2) Land and Buildings (3) Plant and Machinery (4) Furniture and Fittings (7) Investments CURRENT ASSETS A. LIQUID ASSETS (1) Cash Balance (2) Bills Receivable (3) Sundry debtors Less: Bad Debt Reserve B. OTHER CURRENT ASSETS (1) Stocks/Inventories (2) Prepaid Expenses ACCUMULATED LOSSES 1) Miscellaneous Expenses	8,00,000 13,00,000 14,00,000 6,00,000 4,00,000 78,000 8,25,000 12,25,000 (12,000) 12,00,000 2,84,000	45,00,000 36,00,000 6,00,000
72,00,000	Total		87,00,000	72,00,000	Total		87,00,000

Use

In addition to providing all the information pertaining to an accounting period, the information from such a balance sheet enables us to compare the figures relating to the current period with the figures relating to the previous period.

Such a comparison enables us to analyse the changes in the current and non-current areas of the balance sheet over the period involved between the two balance sheet dates.

Deriving information relating to changes from two balance sheets

From two balance sheets, we can derive the data relating to the changes that have occurred in relation to the various balance sheet items over the period between the two dates.

The figures representing the changes in the balance sheet items are not straight away available but are to be derived.

Changes in the Current Area

Changes in the current area can be assessed by taking into consideration only the current natured accounts, both on the assets as well as the liabilities side i.e. current assets and current liabilities only.

Name	Type	Balance as on 31^st March		Change	Nature
Name	Type	2007	2008	Change	Nature
Cash Balance Bills Receivable Sundry Debtors Stocks/Inventories Prepaid Expenses Sundry Creditors Bills Payable Bank Overdraft Outstanding Expenses Provision for Taxation Provision for Dividends Reserve for Bad Debts	Asset Asset Asset Asset Asset Liability Liability Liability Liability Liability Liability Liability	56,000 5,75,000 9,15,000 9,48,000 3,24,000 7,40,000 2,20,000 2,81,000 1,23,000 2,38,000 1,98,000 18,000	78,000 8,25,000 12,25,000 12,00,000 2,84,000 11,00,000 4,00,000 2,50,000 1,00,000 3,00,000 2,50,000 12,000	22,000 2,50,000 3,10,000 2,52,000 40,000 3,60,000 1,80,000 31,000 23,000 62,000 52,000 6,000	Increase Increase Increase Increase Decrease Increase Increase Decrease Decrease Increase Increase Decrease

Bad Debt reserve is current natured and is also a reserve

Reserve for Bad Debts account carries a credit balance. Being related to sundry debtors which are current natured, it is also treated as a current natured account.

Ledger accounts with a credit balance which appear in the balance sheet are shown on the liabilities side. As such, Reserve for Bad Debts account should also be shown on the liabilities side of the balance sheet and since it is current natured it is shown along with current liabilities.

Showing an item on the liabilities side of the balance sheet is the same as deducting it from an item on the assets side of the balance sheet. Thus to derive the information relating to the net realisable debtors, conventionally we deduct the reserve for bad debts from the figure of debtors on the assets side of the balance sheet.

Changes in the Non-Current Area

Changes in the fund area can be assessed by taking into consideration only the fund natured accounts, both on the assets as well as the liabilities side i.e. fund (non-current) assets and fund (non-current) liabilities only.

Name	Type	Balance as on 31^st March		Change	Nature
Name	Type	2007	2008	Change	Nature
Equity Share Capital Preference Share Capital Reserves Long Term Liabilities Fixed Assets Accumulated Losses	Liability Liability Liability Liability Assets Assets	12,00,000 7,00,000 20,00,000 15,00,000 37,00,000 7,00,000	15,00,000 9,00,000 23,00,000 16,00,000 45,00,000 6,00,000	3,00,000 2,00,000 3,00,000 1,00,000 8,00,000 1,00,000	Increase Increase Increase Increase Increase Decrease

Note that the information that is derived only speaks of the magnitude of change and the direction of change. It does not give us an idea of the reasons for change.

Preparation of Schedule/Statement of changes in working capital

Schedule/Statement of changes in working capital

The information relating to the changes in current natured accounts between two periods of time presented in the form of a statement is what we call the schedule/statement of changes in working capital.

Preparing the Schedule/Statement of changes in working capital

Preparing the schedule/statement of changes in working capital requires us to present the information relating to the current area of the balance sheets pertaining to the two periods in the format given below and deriving and presenting the changes within them.

Schedule/Statement of Changes in Working Capital for the period from __ to __
Particulars/Account	Balance as on 31^st March		Working Capital Change
Particulars/Account	2007	2008	Increase	Decrease
a) CURRENT ASSETS 1) Cash Balance 2) Bills Receivable 3) Sundry Debtors 4) Stocks/Inventories 5) Prepaid Expenses	56,000 5,75,000 9,15,000 9,48,000 3,24,000	78,000 8,25,000 12,25,000 12,00,000 2,84,000	22,000 2,50,000 3,10,000 2,52,000	40,000
TOTAL	28,18,000	36,12,000	8,34,000	40,000
b) CURRENT LIABILITIES 1) Sundry Creditors 2) Bills Payable 3) Bank Overdraft 4) Outstanding Expenses 5) Provision for Taxation 6) Provision for Dividends 7) Reserve for Bad Debts	7,40,000 2,20,000 2,81,000 1,23,000 2,38,000 1,98,000 18,000	11,00,000 4,00,000 2,50,000 1,00,000 3,00,000 2,50,000 12,000	31,000 23,000 6,000	3,60,000 1,80,000 62,000 52,000
TOTAL	18,18,000	24,12,000	60,000	6,72,000
Working Capital [(a) - (b)]	10,00,000	12,00,000
TOTAL			8,94,000	6,94,000
Net Change in Working Capital			2,00,000

Identify all the Current natured accounts on the assets as well as the liabilities sides of the two balance sheets in consideration.
Fill the statement with the data relating to those accounts, taking current assets as a group and current liabilities as another group.
A balance sheet item may have data in only one of the balance sheets or in both. Each item should appear only once in the statement.

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