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.
