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Cash Flow Statement Overview (IAS 7)

The statement of cash flows includes cash inflows and outflows from operating, investing, and financing activities. It provides a link between the income statement and balance sheet and allows users to assess a company's liquidity and ability to generate cash. Specifically, it shows why cash balances change despite profits and provides information on a company's ability to generate internal and external cash flows. Operating activities include cash from day-to-day business operations. The statement of cash flows reconciles operating profit to net cash flow from operations through adjustments for non-cash expenses and changes in working capital. It also reports cash flows from investing, financing, and the change in cash and cash equivalents over the period.

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116 views2 pages

Cash Flow Statement Overview (IAS 7)

The statement of cash flows includes cash inflows and outflows from operating, investing, and financing activities. It provides a link between the income statement and balance sheet and allows users to assess a company's liquidity and ability to generate cash. Specifically, it shows why cash balances change despite profits and provides information on a company's ability to generate internal and external cash flows. Operating activities include cash from day-to-day business operations. The statement of cash flows reconciles operating profit to net cash flow from operations through adjustments for non-cash expenses and changes in working capital. It also reports cash flows from investing, financing, and the change in cash and cash equivalents over the period.

Uploaded by

priya
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd

Statement of cash flows (IAS 7)

The cash flow statement includes only inflows and outflows of cash and cash equivalents. It excludes
transactions that do not directly affect cash receipts and payments. Thus, the cash flow is concerned
with the flow of cash in and out of the business.

It is a cash basis report on three types of financial activities: operating activities, investing activities and
financing activities.

Importance and uses of statement of cash flows

1. It provides a link between two statements of financial position and between profit and cash.
2. It provides information to enable users to assess the liquidity and solvency of the business.
3. It provides information as to why cash balance is falling despite huge profits and vice versa.
4. It provides information about its ability to generate cash internally and externally.

Operating activities

It is the first section of the statement of cash flows and it includes cash flows from the principal revenue
generating activities of the enterprise. Operating activities make up the day-to-day business; like paying
operating expenses, purchasing inventory and purchasing inventory

Reconciliation of operating profit to net cash flow from operations

$
Operating profit X
Adjustments for non cash items
Add depreciation X
Add loss on disposal X
Less profit on disposal (X)
Add impairment of intangible asset X
XXX
Adjustments for changes in working capital
Add decrease in inventory/ trade receivables/ expenses prepaid (x)
Less increase in inventory/ trade receivables/ expenses prepaid X
Add increase in trade payables / expenses owing X
Less decrease in trade payables/ expenses owing (X)
XXX
Less interest paid (X)
Less tax paid (X)
Net cash flow from operating activities XXX
$
Cash flow from operating activities XXX
Cash flow from investing activities
Payment to acquire non-current assets (X)
Payment to acquire investment that are non cash equivalent (X)
Cash received on disposal from sale of investment that are non cash X
equivalent
Interest received/ dividend received X
Net cash flow from investing activities XXX
Cash flow from financing activities
Cash received from issue of shares or debentures X
Repayment of debentures and loans (X)
Ordinary dividend paid (X)
Preference dividend paid (X)
Net cash flow from financing activities XXX
Increase/Decrease in cash and cash equivalent X
Cash and cash equivalent at start X
Cash and cash equivalent at end XX
Statement of cash flows for the year ended XXXX

Cash comprises cash in hand and demand deposits.

Cash equivalents are short term, highly liquid investments that are readily convertible to known
amounts of cash and which are subject to an insignificant risk of changes in value. Bank overdrafts are
included as part of cash and cash equivalents.

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