Statement of source and application of funds

The statement of source and application of funds, also called financing chart or statement of source and employments, is a useful instrument to analyze a balance sheet

It is constructed from the base of two balance sheets of the same company and it consists in the integration of all of the variations produced in the assets and the liabilities.

From the former statement you can conclude that this company has invested above all in fixed assets and it has been basically financed with short-term debts, which is negative. As a principle, the fixed assets have to be financed with own sources or with long-term collectibles. The statement of source and application of funds serves to observe in what has the company invested (fixed assets, current assets, devolution of debts, losses) and how have they financed it (capital, debts, earnings, sales of assets, amortizations). In this way, you can prove if the enlargement and its funding is equilibrated or not.

Also, it is interesting to calculate the statement of source and application of funds by detailing the variations produced in each balance account (instead of only using the groups of assets).

In this way, the statement of source and application of funds will supply more information.