What Is Meant by Funds
The word funds could mean either of two things: cash or working capital. 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 Funds Flow Statement depends on what meaning of the term Funds is being used. Funds flow statement taking fund 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 cash flow statement or CFS. On the other hand, a funds flow statement taking funds to mean working capital shows the causes that lead to a movement in current assets and liabilities over a given financial period. The term Funds 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 (like sole proprietorships and partnerships) used to prepare Cash Flow Statements while larger businesses (like joint stock companies, in particular public limited companies) commonly prepared Funds Flow Statements. However, the present trend is to prepare Cash Flow Statements regardless of the size of the business. Funds Flow Statements are gradually going out of use.