Limitations of Funds Flow Statement

Funds flow statement has many advantages; however it has some disadvantages or limitations also. Let’s look at some of the limitations of funds flow statement –

1. Funds flow statement has to be used along with balance sheet and profit and loss account, it cannot be used alone.

2. It does not reveal the cash position of the company, and that is why company has to prepare cash flow statement in addition to funds flow statement.

3. Funds flow statement merely rearranges the data which is there in the books of account and therefore it lacks originality. In simple words it presents the data in the financial statements in systematic way and therefore many companies tend to avoid preparing funds flow statements.

4. Funds flow statement is basically historic in nature, that is it indicates what happened in the past and it does not communicate anything about the future, only estimates can be made based on the past data and therefore it cannot be used the management for taking decision related to future.

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