Cash flow & Fund flow
CASH FLOW & FUND FLOW
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Cash Flow
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Introduction
o
It is the actual movement of cash in and cash out of an organization
o
Flow of cash into the business is called cash inflow or positive cash flow
o
Flow of cash out from the firm is called cash outflow or negative cash flow
o
Net cash flow is the
difference between inflow & outflow of the cash from an organization
·
Objectives
o
Determination of cash requirements
o
To determine the cash position
o
Management of cash in an efficient &
effective manner
o
Identification of liquidity position
o
To help in dividend decisions
o
Supply of proper information
·
Advantages
o
Evaluation of current cash position
o
Estimation of future cash position
o
To take loan from banks
o
To take short term financial decisions
o
Explain the causes for poor cash position
·
Disadvantages
o
Ignorance of non cash transactions
o
Unsuitable for income statements
o
A narrow picture of working capital
Fund Flow
·
Introduction
o
Indicates the amount of change in various
balance sheet items between 2 accounting dates
o
Shows the source and use of funds during an accounting
period
o
In simple words, it is a statement that shows
§ How the funds are obtained?
§ How they are put into the use
·
Preparation steps of a fund flow
o
Statement of changing in working capital
o
Adjust the Profit & Loss account
o
Fund flow statement
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Advantages
o
To know the sources and use of fund
o
To improve the working capital position
o
To assess the efficiency of management in the
utilization of funds
o
To prepare the planning for the investment of
funds
o
Shows the relationship between working
capital & net income
o
To evaluate the post financial performance
·
Disadvantages
o
Ignorance of non fund items
o
Nor original but just a systematic
rearrangement of funds
o
Historic in nature
Cash Flow Vs Fund Flow
Video
Description
·
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