Reason to prepare Fund Flow Statement

Why does we need to prepare Fund Flow Statement?

The balance sheet and income statement are the traditional basic financial statement of a business enterprise. A serious limitation of these statements is that they do not provide information regarding changes in the firm’s financial position during a particular period of time. They fail to answer the following question:
1. What funds were available during the accounting period and for what purpose were these funds utilised?
2. Have long term sources being adequate to finance fixed asset purchase?
3. Does the firm possess adequate working capital?
4. How much funds have been generated from operations?
5. Why did the firm not pay dividend in spite of adequate profit?
The balance sheet is merely a static statement. It is a statement of assets and liabilities of the business on a particular date. The fund flow statement overcomes the limitations of basic financial statement. Fund flow statement provides us with information about different sources of funds and their various uses in particular time.