Funds flow statement is prepared to show changes in the assets, liabilities and equity between two balance sheet dates, it is also called statement of sources and uses of funds. Let’s look at some of the advantages of preparing funds flow statement –
1. Funds flow statement reveals the net result of operations done by the company during the year.
2. In addition to the balance sheet, it serves as an additional reference for many interested parties like creditors, suppliers, government etc… to look into financial position of the company.
3. It shows how the funds were raised from various sources and also how those funds were put to use in the business, therefore it is a great tool for management when it wants to know about where and from funds were raised and also how those funds got utilized into the business.
4. It reveals the causes for the changes in liabilities and assets between the two balance sheet dates therefore providing a detailed analysis of the balance sheet of the company.
5. Funds flow statement helps the management in deciding its future course of plans and also it acts as a control tool for the management.
Funds flow statement should not be looked alone rather it should be used along with balance sheet in order judge the financial position of the company in a better way.