A Fund Flow statement is a report, which explains the movement of funds during an accounting period.
This statement consists of two parts
Sources of funds
Application of funds
The difference between the two shows the net change in the working capital during the period. Only those transactions that affect the net working capital of the firm, find place in this statement.
The Fund Flow statement is a supplement to the two principal financial statements. While supplementing the position statement, it describes the sources from which additional fund were derived and for which these funds were used. The transactions, which increase working capital, are sources of funds and the transactions, which decrease working capital, are application of funds.