The term fund is interpreted in many ways:

1.    Sometimes the term funds means cash and the funds flow statement prepared on this basis is in the form of cash flow statement. In other words, cash flow statement is nothing else but the summary of cash book or receipts and payments statement.
2.    Sometimes the term fund is interpreted as cash equivalent i.e. cash and marketeable securities.
3.    The most accepted interpretation of the term funds is in the form of working capital or net current assets. It means that all those transactions which affect either the current assets or current liabilities will find the place in the funds flow statement.
4.    A wider connatation of the term is found in the interpretation of the term funds as resources concept. This considers all the assets and all the liabilities in which funds are blocked.

Advantages of funds:

1.    Funds flow statement determines the financial consequences of the business operations. A business may be earning profits year still its liquidity position may determining every year, which may provide to be fatal for the business. The preparation of funds flow statement may provide an answer to this critical position.
2.    The basic financial management principle is that the long term requirement of funds should be met out of long term sources of funds. Short term requirements of funds can be met out of long term sources of funds. Short term requirements o ffunds can be met out of long term sources of funds, however under no circumstances long term requirements of funds should be met out of short term sources of funds. From this context, funds flow statement may provide the answers to certain basic questions like:

• Where did the profits earned go?
• How was the increase in working capital financed?
• How were the capital assets financed?
• What happened to sale proceeds of assets?
• What happened to sale proceeds of assets?
• What happened to proceeds of issue of the shares?debentures?

3.    Now a days obtaining the finance from banks or financial has become inevitable. For this purpose they have to be convinced about the payment capacity of the caompany. The questions can be properly answered with the help of funds flow statement.
4.    Funds flow statement prepared on estimated basis for the future period enables the firm to plan its financial resources properly. The firm can know how much funds it requires, how much can be raised internally and how much has to be arranged externally.
5.    The funds statement prepared on the estimated basis, before the commencement of the year when compared with the actual funds flow statement can render useful indication about the fact that whether the firm is using its resources in the planned manner or not.
6.    Funds flow statement covering several years of operations of a company, enables the reader to know about the financial policies followed by the company in the past, contributions of funds from the operations for the growth of the company etc. it helps as a reliable guide for the future requirement of funds.

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