Sources & application
This query is : Resolved
10 October 2013
Is the difference of sources over application equal to net increase in assets,in case of individual?
10 October 2013
on basic level yes.
14 October 2013
Thanks for Answer. can u please explain to me how is it so in simple language?
25 July 2025
Great question!
For an individual (or any entity), the **difference between Sources and Applications of funds** essentially reflects the **net change in financial position** over a period.
* **Sources of Funds** = Where the money came from (e.g., income, loans, sale of assets, capital introduced).
* **Applications of Funds** = Where the money was used (e.g., expenses, purchase of assets, repayment of loans, drawings).
### Is difference = net increase in assets?
**Not exactly**, because:
* The **difference between Sources and Applications** shows the **net increase or decrease in funds** during the period.
* But **net increase in assets** means **increase in total assets owned**.
However, if there are **no changes in liabilities**, then:
> **Sources - Applications = Increase in Assets**
But if liabilities change (increase or decrease), then:
> **Net increase in assets = (Sources - Applications) + (Change in Liabilities)**
Because:
**Assets = Liabilities + Owner’s Equity**
---
### Summary:
* If liabilities remain constant, difference between sources and application = net increase in assets.
* If liabilities change, you must account for that change to find net asset increase.
---
If you want, I can help you with an example or a detailed explanation!
For an individual (or any entity), the **difference between Sources and Applications of funds** essentially reflects the **net change in financial position** over a period.
* **Sources of Funds** = Where the money came from (e.g., income, loans, sale of assets, capital introduced).
* **Applications of Funds** = Where the money was used (e.g., expenses, purchase of assets, repayment of loans, drawings).
### Is difference = net increase in assets?
**Not exactly**, because:
* The **difference between Sources and Applications** shows the **net increase or decrease in funds** during the period.
* But **net increase in assets** means **increase in total assets owned**.
However, if there are **no changes in liabilities**, then:
> **Sources - Applications = Increase in Assets**
But if liabilities change (increase or decrease), then:
> **Net increase in assets = (Sources - Applications) + (Change in Liabilities)**
Because:
**Assets = Liabilities + Owner’s Equity**
---
### Summary:
* If liabilities remain constant, difference between sources and application = net increase in assets.
* If liabilities change, you must account for that change to find net asset increase.
---
If you want, I can help you with an example or a detailed explanation!
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