The funds flow statement, although less commonly used today, provides information about changes in a company’s financial position between two accounting periods. Similar to the cash flow statement, funds flow statement notes provide additional context and explanations regarding the sources and uses of funds, helping users of financial statements understand the movement of funds within the organization. Here’s a detailed breakdown of the typical content of funds flow statement notes:
- Heading or Title: Each funds flow statement note should have a clear heading or title that describes its content. For example, “Note 1 – Analysis of Changes in Financial Position” or “Note 4 – Non-Current Asset Transactions.”
- Note Numbering: Similar to other financial statement notes, funds flow statement notes are typically numbered sequentially for easy reference.
- Funds Flow Statement Segmentation: Breakdown of the funds flow statement into different sections, usually sources and uses of funds. Each section should be discussed separately in the notes.
- Sources of Funds: Explanation of the sources of funds, which typically include increases in long-term liabilities, equity contributions, and non-operating income. This note should provide a detailed breakdown of the funds obtained from these various sources.
- Uses of Funds: Disclosure of the uses of funds, which may include repayment of long-term debt, capital expenditures, and non-operating expenses. This note should provide a detailed breakdown of the funds used for these various purposes.
- Net Change in Working Capital: Discussion of the changes in current assets and liabilities and their impact on the overall funds flow. This note should explain how changes in working capital contributed to the change in financial position.
- Non-Current Asset Transactions: Details about significant transactions involving non-current assets, such as purchases or sales of property, plant, and equipment. This note should explain how these transactions affected the overall funds flow.
- Financing and Investing Activities: Explanation of financing and investing activities that had a material impact on the funds flow statement, including loans, investments, and changes in equity.
- Non-Operating Items: Disclosure of non-operating items, such as gains or losses on sales of assets or investments, that had an impact on the funds flow.
- Adjustments to Net Profit: Reconciliation between net profit (or loss) and the net change in funds. This should highlight adjustments made to convert net profit to net change in funds.
- Cash Flow and Funds Flow: Comparison between the cash flow statement and the funds flow statement, discussing any significant differences between the two statements.
- Explanation of Unusual or Non-Recurring Items: Explanation of any unusual or non-recurring items that significantly impacted the funds flow, along with the rationale for including or excluding them.
- Comparison with Previous Period: Analysis of the changes in financial position between the current and previous accounting periods, highlighting any significant trends or variations.
- Impact of External Factors: Discussion of how external factors, such as changes in economic conditions, industry trends, or regulatory changes, influenced the funds flow statement.
- Contingencies and Commitments: Disclosure of significant contingencies and commitments that had an impact on the funds flow.
- Other Disclosures: Depending on the company’s specific circumstances, there may be additional notes related to funds flow, such as details about significant acquisitions, divestitures, or changes in ownership.
Each funds flow statement note should provide clear explanations and context, using appropriate headings, subheadings, tables, and numerical examples where necessary. These notes enhance the transparency and understanding of the funds flow statement, helping users analyze the movement of funds within the company over time. Note that the specific content and format of funds flow statement notes may vary based on accounting standards, regulatory requirements, and the company’s unique circumstances.