Question

9. A funds flow statement is a better substitute for an income statement. Discuss​

Answer 1

Answer:

We should remember that a Funds Flow Statement is neither a substitute of Income Statement nor a Balance Sheet. ... Since Balance Sheet is prepared at a particular date, it is a static one, but a funds flow statement is dynamic in nature.

I hope my answer will help you

Answer 2

Answer:

Yes, we can say that a funds flow statement is a better substitute for an income statement.

Explanation:

• "Balance Sheet is a statement of the assets, liabilities, and capital of a business detailing the balance of income and expenditure over the preceding period."

• "Funds flow Statement reveals the reasons for changes in the financial position of a company between two balance sheets.  

REASONS WHY FUNDS FLOW STATEMENT IS BETTER THAN AN INCOME STATEMENT:

• Balance sheet presents the financial position of a firm at a particular date and thus can be said to be a static one whereas funds flow is dynamic.
• a funds flow statement identifies the various information about the financial resources of a company. It presents the changes in assets and liabilities something which is not done by the Balance Sheet.
• Only revenue items that are revenue receipts and revenue expenditures are taken into account whereas both transactions of Capital and Revenue are taken into consideration.
• Funds flow statement should have both sides that are Sources of Funds and Application of Funds should always be equal. Whereas in Income Statement there is always an imbalance which is known as either loss or profit.