What Is a Funds Statement?

A funds statement, also known as a sources and applications of funds statement, outlines changes in the financial condition of an entity. In essence, it tells how the company spent and acquired money over a certain period. This includes payments such as for taxes, equipment, and debt. It also details the receipt of capital from means such as tax benefits, income, and the sales of market assets. The cash flow statement replaced the older funds statement format.

Most funds statement reports will use the company’s balance sheet as a guideline. They are essentially driven by the changes in this document. The result is a statement that shows cause and effect, such as how a certain purchase affected the bottom line. By going into more specific detail about cash flow, it can be easier to analyze whether resources are being allocated in the most advantageous way. This can help a company to improve its money management, while giving outside sources an idea as to how well the company’s finances are being managed.

A funds statement can show changes in assets made both internally and externally. It can include changes within the company such as depreciation, transfer of funds among accounts, and any expenses that have been written off. External changes can include the sale of fixed assets and funds from the growth of share capital or a long-term loan.

The purpose of a funds statement is to demonstrate that the management of the company has been handling finances effectively. It is a status report which enables investors to analyze the current state of the company and make forecasts for the future. The funds statement also provides the detail needed to ensure that the financial actions of the company are acceptable, in addition to being profitable.

A funds statement is typically used by several kinds of people. Internally it can be a useful tool for planning strategy and keeping track of company finances. Top executives, directors, and accounting professionals may all use the statement. Some of the external individuals who may use the statement include shareholders, banks, and vendors.

Other documents which show the flow of funds include the statement of changes in working capital (SCWC) and funds from operations (FFO). The SCWC focuses only on changes in the levels of working capital. FFO shows profit and loss without the transactions that don’t have a direct effect on the funds available.