The term funds may refer to either of two things:
Cash will include cash at bank, cash in hand, and perhaps short-term investments; while working capital is the excess of current assets over current liabilities.
The preparation of a fund flow statement depends on which of these meanings of the term fund is being applied.
A fund flow statement, where “fund” is taken to mean cash resources, shows the causes that lead to a movement in cash items over a given financial period. Such a fund flow statement is more commonly known as a cash flow statement.
On the other hand, a fund flow statement that is prepared based on a definition of “fund” as meaning working capital shows the causes that lead to a movement in current assets and liabilities over a given financial period.
The term fund flow statement is more commonly used for a statement that traces movements in working capital items, rather than just cash resources.
Until recently, smaller businesses (e.g., sole proprietorships and partnerships) used to prepare cash flow statements while larger businesses (e.g., joint-stock companies and, in particular, public limited companies) commonly prepare fund flow statements.
However, the present trend is to prepare cash flow statements regardless of the size of the business. In other words, fund flow statements are gradually falling out of use.