Contents

Objectives
Scope
Presentation
Cash flows from operating activities
Cash flows from investing activities
Cash flows from financing activities

Statement of cash flows

Objectives
The objective of IAS 7 is to provide the information

about the historical changes in cash and cash

equivalents of an enterprises by means of a
statement of cash flows, which classifies cash flows
during the period according to Operating,
Investing and Financing activities.

Scope
Applies to all entities-regardless of the nature of
entitys activity.

Importance
To show that profits are being realized.
To pay dividends.
To finance further investment.

Presentation
A statement of cash flows is a list of cash in and
cash out reconciling opening and closing cash
balances.
Classification

Cash flow from Operating activities

Operating activities are the main revenue producing
activities of the enterprises that are not investing or
financial activities.
Cash flows can be presented by either:
Direct method

or

Indirect method

Key indicator of sufficiency of cash flows without recourse to

external sources of finance.
Useful in forecasting future operating cash flows.
Primarily derived from principal revenue-producing activities.
Generally results from transaction and events so included in
profit and loss.

Cash flows from Investing activities

Investing activities are the acquisition and disposal
of long term assets and other investments that are
not considered to be cash & cash equivalents.
Separate disclosure-cash flows represent extent to
which expenditures have been made for resources
intended to generate future income and cash flows

Cash flows from financing activities

Financing activities are the activities that alter the
equity capital and borrowing structure of the
enterprise.
Separate disclosures-Useful in predicting claims on
future cash flows by providers of capital.

Cash and cash equivalents

Cash on hand
Bank overdrafts- if repayable on demand and form an integral
part of cash management.
Demand deposits: from banks & other financial institutions
Short term highly liquidated investment that are readily
convertible to a known amount of cash and that are subject to
an insignificant risk of changes in value.
Equity investment are normally excluded, unless they are, in
substance , cash equivalents.
An investment normally meets the definition of a cash equivalents
when it has a maturity of 3 months or less from the date of
acquisition)

Cash flows from operating activities-Direct method

Cash flow from operating activities
Cash receipts from customers
Cash paid to suppliers and employees
Cash generated from operations

x
(x)

Interest paid

(x)

Income taxes paid

(x)

Net Cash generated from operating activities

Cash flow from operating activities-Indirect method

Cash flow from operating activities
Profit before taxation

Adjustments for:
Depreciation
Investment income
Interest expense

x
(x)
x

Operating profit before working capital changes

Increase in trade and other receivables
Decrease in inventories
Decrease in trade payables
Cash generated from operations

x
(x)
x
(x)
X

Statement of cashflows
Cash flows from operating activities(direct or indirect

method)

Cash flows from investing activities

Purchase of property ,plant and equipment
Proceeds from sale of equipment
Interest received
Dividends received

(x)
x
x
x

Net cash used in investing activities

Cash flows from financing activities

Proceeds from issuance of share capital
Proceeds from long term borrowings
Dividends paid

x
x
(x)

Net cash used in financing activities

Net increase in cash and cash equivalents

Cash and cash equivalents at the beginning of the

period

Cash and cash equivalents at the end of the period

X