What is Fund Flow Statement and with Practical Examples
A daily fund flow statement tracks the movement of funds into and out of a company or financial institution on a daily basis. It's a crucial tool for monitoring liquidity, identifying trends, and managing cash effectively. Here's a simplified example:
Daily Fund Flow Statement Example:
Date: June 10, 2024
1. Opening Balance: $500,000
2. Inflows:
Sales Revenue: $100,000
Loan Disbursement: $50,000
Investment Income: $10,000
Total Inflows: $160,000
3. Outflows:
Operating Expenses: $80,000
Loan Repayment: $20,000
Purchase of Equipment: $30,000
Dividend Payment: $15,000
Total Outflows: $145,000
4. Net Cash Flow (Inflows - Outflows): $15,000
5. Closing Balance (Opening Balance + Net Cash Flow): $515,000
Interpretation:
Inflows:
Money coming into the company, including revenue from sales, loans received, and investment returns.
Outflows:
Money going out of the company, including operating expenses, loan repayments, capital expenditures, and dividend payments.
Net Cash Flow:
The difference between total inflows and total outflows, indicating whether the company has a surplus (positive cash flow) or a deficit (negative cash flow) for the day.
Closing Balance:
The amount of cash the company has at the end of the day after accounting for all inflows and outflows.
Importance:
Liquidity Management:
Helps in ensuring that the company has enough cash to meet its short-term obligations.
Trend Analysis:
Allows for the identification of patterns or trends in cash flow, enabling better forecasting and planning.
Decision Making:
Provides insights for decision-making regarding investment, financing, and operational strategies.
In practice, daily fund flow statements may include more detailed categories of inflows and outflows, as well as additional sections for non-cash transactions or adjustments. They are usually prepared by the finance or accounting department and reviewed by management regularly to assess the financial health of the organization.