Ias 7 8 PDF Free
Ias 7 8 PDF Free
Ias 7 8 PDF Free
The statement of cash flows analyses changes in cash and cash equivalents during a period.
Cash and cash equivalents comprise cash on hand and demand deposits, together with
short-term, highly liquid investments that are readily convertible to a known amount of
cash, and that are subject to an insignificant risk of changes in value. Guidance notes
indicate that an investment normally meets the definition of a cash equivalent when it has a
maturity of three months or less from the date of acquisition. Equity investments are
normally excluded, unless they are in substance a cash equivalent (e.g. preferred shares
acquired within three months of their specified redemption date). Bank overdrafts which
are repayable on demand and which form an integral part of an entity's cash management
are also included as a component of cash and cash equivalents. [IAS 7.7-8]
Key principles specified by IAS 7 for the preparation of a statement of cash flows are as
follows:
operating activities are the main revenue-producing activities of the entity that are
not investing or financing activities, so operating cash flows include cash received
from customers and cash paid to suppliers and employees [IAS 7.14]
investing activities are the acquisition and disposal of long-term assets and other
investments that are not considered to be cash equivalents [IAS 7.6]
financing activities are activities that alter the equity capital and borrowing
structure of the entity [IAS 7.6]
interest and dividends received and paid may be classified as operating, investing,
or financing cash flows, provided that they are classified consistently from period to
period [IAS 7.31]
cash flows arising from taxes on income are normally classified as operating, unless
they can be specifically identified with financing or investing activities [IAS 7.35]
for operating cash flows, the direct method of presentation is encouraged, but the
indirect method is acceptable [IAS 7.18]
The direct method shows each major class of gross cash receipts and gross cash
payments. The operating cash flows section of the statement of cash flows under the
direct method would appear something like this:
The indirect method adjusts accrual basis net profit or loss for the effects of non-
cash transactions. The operating cash flows section of the statement of cash flows
under the indirect method would appear something like this: