FUND FLOW ANALYSIS| ACCOUNTANCY &AUDITING|L-4|

A fund flow analysis is a financial document which you can create and use to analyse and understand the financial position of your business. More importantly, it sets out where funds are coming into your business and how they are being used. In some ways, it works along the same lines as a cash flow, but is more detailed. A fund flow analysis combines a cash flow statement with other data such as an income statement or a balance sheet.

Building a fund flow analysis

Putting a fund flow analysis together pulls together the data gathered on documents such as:

A balance sheet – this brings together details of the assets, liabilities and capital holdings in current accounts of your business across a specific period of time.

A profit and loss statement – this details the revenue taken in by your business and the expenses accrued. By detailing these metrics, it can produce figures for the loss or profit generated over a specific period. 

A cash flow statement – this document is similar to a fund flow analysis in measuring the flow of cash into and out of your business across a specific time period. The areas covered by a cash flow can include the costs of operating, investments that you’ve made and any finance taken on board. 

Why use a fund flow analysis?

You may look at the balance sheet for your business and decide that it includes all of the detail you need. The key flaw of a balance sheet and the reason why a fund flow analysis is more useful is that a balance sheet only provides a frozen snapshot: it details current liabilities, equity and assets, but doesn’t include information on the source of the funds and the uses to which those funds were put. 

Another benefit of a fund flow analysis over and above a balance sheet is that a fund flow analysis can cover more than one accounting period. In this way, it is used to track the changes in your business over a longer time span.