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It helps in checking whether Funds are used for Correct purpose

 

Suppose in Fund Flow Statement 

There is Long Term Surplus of 800, and Short Term Deficit of (800)

It means that Long term funds are used for Short Term Purpose

 

 

There is Long Term Deficit of (600), and Short Term Surplus of 600

It means that Short term funds are used for Long Term Purpose

 

 

Bank checks Fund Flow Statement while giving loans so that it can ensure that

If Bank OD/CC is given,it is used for short term purpose only (Debtors/Stock)

And

If Term Loan is given, it is used for long term purpose like purchasing fixed assets

 

Hence, it helps to determine there is no misuse of funds taken from bank.

  1. Accounts and Finance
  2. Step 6 Fund Flow and Cash Flow
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CA Maninder Singh's photo - Expert in Practical Accounts, Taxation and Efiling
CA Maninder Singh
CA Maninder Singh is a Chartered Accountant for the past 8 years. He provides courses for Practical Accounts, Taxation and Efiling at teachoo.com .
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