Analysis of fund flow and cash flow statements, Cost Accounting

After you have studied this section, you should be capable to:

  • know the idea of funds flowing by a business in a dynamic situation
  • understand the role of working capital in business operations
  • know the sources and uses of working capital and also cash during an accounting period from the financial statements
  • identify with and interpret changes in working capital knowing the causes of these changes
  • use the funds flow statement and the cash flow statement like analytical tools.

Depending upon the user's purpose, the term 'funds' may be utilized differently. Literally, this implies a supply that can be drawn upon. This means it is used for mean cash, total working capital or current assets. We use this here in the sense of working capital meaning total current assets less current liabilities.

Funds flow is utilization is refer to changes in or movement of current liabilities and current assets. This movement is of vital significance in understanding and managing of the operations of a business.

We have seen in the section dealing along with balance sheet that every material transaction changes the position statement or Balance Sheet. It in other words implies a dynamic situation including continuous movement of resources in the business, inside the business and out of the business. The complication of these flows rises with the rising size and volume of business. Indirectly or directly, all these flow take place in business by the medium of funds.

Funds in the type of cash and cash equivalents, into the right quantity are essential for the smooth functioning of any business. The continuous movement of cash inside the business and out of the business could be understood through studying the cash flow statement.

Posted Date: 4/9/2013 1:24:42 AM | Location : United States







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