Introduction to Funds Type Statements

Controlling the flow of funds through a business is an important management activity. An analyst may judge the overall quality of management by interpreting the clues about how successfully the management team brings funds into the company and how successfully management allocates those funds once raised. There are several financial statements that may assist the analyst in gathering clues about funds flow.

Funds Type Statements

Funds Type Statements are statements showing how funds flow through a business. Some examples include:

Examples of Funds Statements

  • Statement of Changes in Financial Position
  • Cash Flow Statement
  • Funds Statement

Funds Flow

Statements showing flow of funds throughout a business may provide clues about the quality of management.

Sample Statements

Statement of Changes in Financial Position

Statement of Changes in Financial Position
Products, Inc.
April 2017
Sources of Funds
Net Income from Operations$41,675
Reduction in Cash$15,000
Reduction in Receivables$44,855
Reduction in Marketable Securities$37,750
Depreciation$10,000
Total$149,280
Uses of Funds
Increase in Inventories$93,280
Increase in Fixed Assets$22,000
Decrease in Notes Payable$24,000
Decrease in Long-Term Debt$10,000
Total$149,280

Cash Flow Statement

Cash Flow Statement
Products, Inc.
August 2017
Cash Flows From Operations
Net Income from Operations$41,675
Reduction in Receivables$44,855
Reduction in Marketable Securities$37,750
Depreciation$10,000
Increase in Inventories− $93,280
 $41,000
Cash From Investing Activities
Increase in Fixed Assets− $22,000
 − $22,000
Cash From Financial Activities
Decrease in Notes Payable− $24,000
Decrease in Long-Term Debt− $10,000
 − $34,000

Funds Statement

Funds Statement
Products, Inc.
June 2017
Sources of Funds
Reduction in Accounts Receivables$44,855
Reduction in Inventory$37,750
Retained Earnings$31,675
Reduction in Cash$15,000
Total$129,280
Uses of Funds
Payoff Long-Term Liabilities$93,280
Payoff Notes Payable$24,000
Purchase Fixed Assets$12,000
Total$129,280

Constructing a Funds Statement

Constructing a Funds Statement

  • Compare Two Balance Sheets
  • Identify Changes in Each Item
  • Classify Those Changes as Sources or Uses of Funds
  • Assemble Information in Desired Format
  • Analyze the Information

Sources and Uses of Funds

Sources of Funds

  • Increase in a Claims Item
  • Decrease in an Asset Item

Uses of Funds

  • Increase in an Asset Item
  • Decrease in a Claims Item

Classifying Changes

Example of Classifying Changes

In the Funds Statement example below, the cash account goes from $20,000 on the first, Beginning Balance Sheet to $5,000 on the second, Ending Balance Sheet. That is a decrease of $15,000. A decrease in an asset item is a source of funds. Other changes would be classified accordingly.

Funds Statement – Step 1

Beginning Balance Sheet
Products, Inc.
Assets Claims
Cash$20,000 Accounts Payable$10,000
Marketable Securities$10,000 Accruals$4,000
Receivables$50,000 Notes Payable$24,000
Inventories$70,000 Long-Term Debt$96,000
Fixed Assets$160,000 Common Stock$64,000
 Retained Earnings$112,000
Total Assets$310,000 Total Claims$310,000
Ending Balance Sheet
Products, Inc.
Assets Claims
Cash$5,000 Accounts Payable$10,000
Marketable Securities$10,000 Accruals$4,000
Receivables$5,145 Notes Payable$0
Inventories$32,250 Long-Term Debt$2,720
Fixed Assets$172,000 Common Stock$64,000
 Retained Earnings$143,675
Total Assets$224,395 Total Claims$224,395

Analyzing Information

When analyzing the information that goes into a funds statement, each item should be analyzed in detail and the overall impact of any change should be examined.

In the funds statement example below, the company appears to be profitable because retained earnings increased. Also, the company paid off a great deal of debt and purchased some fixed assets. To finance these moves, the company relied on reductions in inventory, receivables, and cash, as well as plowed earnings back into the firm.

Funds Statement – Step 2

Sources and Uses of Funds
 EndingBeginningSourceUse
Cash$5,000$20,000$15,000 
Marketable Securities$10,000$10,000  
Receivables$5,145$50,000$44,855 
Inventories$32,250$70,000$37,750 
Fixed Assets$172,000$160,000 $12,000
Accounts Payable$10,000$10,000  
Accruals$4,000$4,000  
Notes Payable$0$24,000 $24,000
Long-Term Debt$2,720$96,000 $93,280
Common Stock$64,000$64,000  
Retained Earnings$143,675$112,000$31,675 

This overview was developed by Dr. Sharon Garrison.
No adaptation of its content is permitted without permission.