JUMP TO SECTION
The source and uses of funds statement explain where a company’s money came from and how the organization has put it to use in the past and how they will use the funds in the future. It contains the cash inflows into the company, the cash received, the cash outflows from the company, or the money spent.
So, what purpose does it serve?
If your sources and uses of funds statement are accurately prepared, it can communicate well with the readers, and hence, it is quite crucial to prepare a compelling sources and uses of funds statement.
This article explains the sources and uses of funds statements and the step in creating the statements with examples.
A company’s sources and uses of funds is a statement that provides information on how much did the company raise the money and how they were applied to achieve the company’s goals.
The sources and uses of funds statements reflect the impact of changes in the balance sheet contents on the organization’s cash-in-hand. These are the statements that also guide organizations in their short-term planning decisions that involve available funds.
These statements are widely used for
The Sources and Uses of Funds have two parts,
Let’s understand both sections of the statement in detail.
Often called ‘the application of funds, uses of funds reflect how an organization used the money it received from various sources. The uses of funds can also be understood as the cash outflow since it is the money spent for various activities performed to achieve the organizational goals.
It generally consists of the following components:
Organizations will need cash and working capital to run the business and perform day-to-day activities.
The opening balance of the supplies, equipment, and furniture tells us where the organization has already spent its money.
The amount spent on acquiring land and building for business use is a huge capital expense and results in cash outflow.
These costs Include rent, deposits paid for the rented building/apartment, machinery acquisition costs, initial payments for insurance, company setup costs, etc.
These include other operating costs such as the rental expenses of the leased machinery, repairs and maintenance expenses, outsourcing costs, etc.
Businesses need capital or funding to run the operations and when the new business is set up, it requires sufficient funding to incur initial start-up costs. Hence, the sources of funds also include the money your investors have given to you.
Below are the other elements of the sources of the funds for most businesses.
Owners of the businesses bring specific amounts of capital to start the company and they also contribute more capital as and when needed from time to time.
The assets that the companies sell due to discontinuance of some of the operations or assets becoming non-operatable are another source of funds.
Any other cash income generated from the sale is also considered one of the sources of funds.
One of the essential tasks of an organization in preparing the financial statements of the company would be to prepare the sources and uses of funds statement. It is because the statement reflects the efficiency of the business in depicting how effectively funds were utilized from the available sources.
The uses of funds section is prepared first, and then the sources of funds.
Let’s learn how to prepare the uses of funds section of the sources and uses of the funds statement.
This section lists all the sources of funds depicting from where the money has come to fund the business.
While preparing the statement for sources and uses of funds, please note it has to be simple, and easy to understand. If you complicate the statement by adding difficult terms or complex numbers, readers may misinterpret the statement and you may lose a potential investor or a bank loan.
Statement of Sources and Uses of Funds:
|Plant and Machinery Costs||112,000||Owners’ Contributions||5,54,000|
|Suppliers and Marketing Costs||90,600||Home Equity||31,000|
|Other Startup Costs||78,000||Sale of Stocks||198,400|
|Total Startup Costs||823,600||Total Sources of Funds||8,51,000|
|Working Capital Required||250,000||Total to be Financed||222,600|
|Total Uses of Funds||10,73,600||Total Sources of Funds||10,73,600|
As you grow your business, you may need more funds to meet the business expansion costs, and hence, it is important not only the startup companies but the well-established businesses as well to craft a compelling statement of sources and uses of funds.
We can help you prepare the statement of sources and uses of funds faster and more accurate along with other reports such as financial statements, ratio analysis to help you better understand the financial position of your company
No Risk – Cancel at Any Time – 15 Day Money Back Guarantee