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IAS 7 Statement of Cash Flows


 
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IAS 7 Statement of Cash Flows

Objective

The objective of this standard is to require the provision of information about the changes in cash and cash equivalents of a business by means of a statement of cash flows. This classifies cash flows during the period from operating, investing and financing activities.

Definition

Cash flows are inflows and outflows of cash and cash equivalents. Cash comprises cash on 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.

Operating activities

Operating activities are the principal revenue-producing activities of the entity and other activities that are not investing or financing activities. Cash flows from operating activities are primarily derived from the principal revenue-producing activities of the entity, i.e. the sales that the business was primarily set up to make.

The amount of cash flows arising from operating activities is a key indicator of the extent to which the operations of the entity have generated sufficient cash flows to repay loans, maintain the operating capability of the entity, pay dividends and make new investments without needing external sources of financing.

An entity shall report cash flows from operating activities using either:

(a) the direct method, whereby major classes of gross cash receipts and gross cash payments are disclosed; or

(b) the indirect method, whereby profit or loss is adjusted for the effects of transactions of a non-cash nature and movements in inventory, receivables and payables.

Investing activities

Investing activities are the acquisition and disposal of long-term assets and other investments not included in cash equivalents. The disclosure of cash flows arising from investing activities is important because the cash flows represent the expenditure in resources intended to generate future income and cash flows.

Financing activities

Financing activities are activities that result in changes in the size and composition of the contributed equity and borrowings of the entity. The separate disclosure of cash flows arising from financing activities is important because it is useful in predicting the costs of servicing those sources of finance in the future.

Created at 10/23/2012 3:44 PM  by System Account  (GMT) Greenwich Mean Time : Dublin, Edinburgh, Lisbon, London
Last modified at 11/16/2012 3:41 PM  by System Account  (GMT) Greenwich Mean Time : Dublin, Edinburgh, Lisbon, London

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ACCAPEDIA - IAS 7 Statement of Cash Flows