Statement of source and application of funds;

              Opinions
off the
Accounting Principles Board *
American Institute of Certified Public Accountants
666 Fifth Avenue, New York, N. Y. 10019
Copyright 1963 by American Institute of Certified Public Accountants, Inc.
October, 1963 No. 3
THE STATEMENT OF SOURCE AND APPLICATION OF FUNDS
INTRODUCTION
1. Increased attention has been given in recent years in the United States to what has generally come to be known as "Flow of Funds Anal-ysis." For several years the Board of Governors of the Federal Reserve System has published quarterly and annual statistics in the Federal Reserve Bulletin showing the flow of funds in the economy. The Flow-of-Funds National Accounts of the Federal Reserve Board have joined the National Income Accounts of the Department of Commerce as im-portant tools of national fiscal and monetary policy. Management, analysts, and investors have also become increasingly aware of the value of this aspect of financial reporting for the individual corporation.
2. Accountants have long prepared statements of source and appli-cation of funds for management, which are in fact reports on the flow of funds in individual companies. These statements have often been presented in annual reports. The concept of "funds" used in these statements has varied somewhat in practice, and variations in the con-cept have resulted in variations in the nature of the statements. For example, "funds" has sometimes been interpreted to mean cash or its equivalent; in such cases the resulting statement of source and applica-tion of funds is a statement of cash receipts and disbursements. The most common concept of "funds" has, however, been that of working capital, i.e., current assets less current liabilities. If the definition is applied literally, the resulting statement includes only those transactions which affect the current assets or the current liabilities. A broader interpretation identifies "funds" as all financial resources arising from transactions with parties external to the business enterprise.1
1 Examples of different uses of the term "funds" are found in " 'Cash Flow' Analysis and the Funds Statement," by Perry Mason, Accounting Research Study No. 2, published by the American Institute of CPAs in Nov. 1961, pp. 51-56. This study contains numerous examples of other aspects of these statements. (Accounting re-search studies are not statements of this Board or of the Institute but are published for the purpose of stimulating discussion on accounting issues.)
13