There are certain limitations and drawbacks in funds flow statement even though it provides various benefits to the business organization and used as a best tool for financial analysis to the top management. But, it has certain limitations or drawbacks. They are briefly explained below.
Limitations or Drawbacks of Funds flow statement
1. Funds flow statement does not contain the past information which may be a vital information to take quality decision at times.
2. The current year funds flow statement is used for current year only and not useful for future operation and decision making purpose also.
3. It fails to reveal continuous changes.
4. The accuracy and reliability of funds flow statement is fully depending upon the financial statements.
5. It is not a substitute of profit and loss account and balance sheet. It provides only additional information.
6. It shows only either increase in working capital or decrease in working capital. But, the effect of transactions between current assets and current liabilities are not included in the funds flow statement.
7. Funds for statement is not an original statement. It is only a systematic rearrangement of accounting data given in financial statements.
8. It does not provide information about changes in cash which are more important and relevant than working capital.