The Funds Statement Reconsidered.

Abstract A balance sheet, whatever else it may be or purport to be, sets out, as at a certain point of time, the sources from which funds have been derived in the past and the ways in which such funds have been applied or employed. Before discussing the meaning of "funds" in this context it is worth recalling that this view of the balance sheet reflects the point of view that an accountable entity is regarded as distinct from its owners, managers, employees, creditors and any other persons with whom "it" may have dealings, and that "it" is regarded as being capable of possessing things and having rights against persons and other accounting entities. The balance sheet, then, is a statement setting out, on the one hand, the amounts of funds which a hypothetical, or better, perhaps, a conceptual enterprise has derived from creditors of various kinds and proprietors, and, on the other, the various ways in which those "funds" have been embodied with varying degrees of permanence by or on behalf of the enterprise. This approach appears to clear up a difficulty which many people, including, especially, students, experience, namely, that of conceiving a decrease of cash as a source of funds and an increase as an application, for, if the conceptual nature of funds is accepted, there remains no ground for confusion between "funds" and "cash." To eliminate all possibility of confusion, perhaps a new term altogether is needed to express the concept.