A Flow of Funds Approach to Accounting Theory.

Abstract The article examines flow of funds approach to accounting theory. It is quite common now for a firm to publish a statement showing the flow of funds during its financial year. These statements are known by such various titles as "source and use of funds," or "financial inflow and outflow." All attempt to show the finance which has become available and the uses to which it has been put. The presentation of the third statement, in addition to the statements of profit and financial position, has developed in an attempt to provide meaningful and intelligible information for investors, analysts and other interested persons. If the flow of funds statement is a useful summary of a firm's activities, it is possible that this statement is a useful starting point for two other purposes. On the one hand, it may be possible to use the statement for introducing accounting to first-year students, whether accounting or non-accounting majors. On the other hand, it may be helpful to use the flow of funds statement as a focal point in discussions about accounting concepts.