Ssap 10: Statements of Source and Application of Funds

SSAP 10: Statements of Source and Application of Funds

The Accounting Standards Committee recognized the importance of the funds flow statement in SSAP 10 'Statements of Source and Application of Funds' published in January 2006. According to SSAP 10,

'A Funds Statement should show the sources from which funds have flowed into the company and the way in which they have been used. It should show clearly the funds generated or absorbed by the operations of the business and the manner in which any resulting surplus of liquid assets has been applied or any deficit of such assets has been financed, distinguishing the long-term from the short-term. The statement should distinguish the use of funds for the purchase of new fixed assets from the funds used in increasing the working capital of the company.'

SSAP 10 applies to all enterprises with a turnover or gross income of more than £25,000 per annum. Appendix 1 of SSAP 10 suggests that the format of the funds flow statement for a company without subsidiaries should be simple.

An important way in which our funds flow statement differs from that proposed in SSAP 10 is in the treatment of dividends and taxation. According to the standard these two items should be disclosed as being paid in the period. This is different from our treatment where the application of funds was based on dividends declared for the period and on taxation which is currently provided. Unfortunately, the standard is not very clear in observing the principles involved in changes to the final accounts. These changes can be explained in two ways: (i) by demonstrating the flow of variables involved and (ii) by demonstrating the changes in the stocks of those variables. Viewed from this standpoint it may be seen that SSAP 10 confuses these two aspects without identifying the figure that is really under analysis-the change in working capital. This makes these statements unnecessarily complicated and what should be an aid to the understanding of the results of an enterprise's activities, adds to confusion.


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Read on: Funds Flow and Cash Flow Statements

Funds flow and cash flow statements

The two financial statements so far discussed constitute the traditional format by which information is conveyed about the financial performance and the financial status of the enterprise. The income statement contains details of the financial performance resulting in a figure of net income; the balance sheet provides details of the financial status of the enterprise in the form of a listing of assets and liabilities as at the close of the accounting period.

The purpose of the funds flow statement and the cash flow statement is to provide additional... see: Funds Flow and Cash Flow Statements