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**
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### 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.
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