Question

sources of funds formula​

Answer 1

Answer

(1) Funds from Operation (i.e. Trading Profit):

It is the most regular and significant source of fund. It is the largest source of fund in the long run. The payment of dividend, repayment of loans, purchases of fixed assets etc. must depend upon this source. We know that sales are the result of inflow of funds in the form of cash or accounts receivable. But cost of goods sold along with the other operating expenses cause outflow of funds, and, at the same time, reduces Cash and Bank balance

So, the net effect of operation will be a source of funds (as inflow of funds) when sales revenue exceeds cost of goods sold and operating expenses (outflow of funds) during the period, and vice versa in the opposite case.