Chapter 13 - Statement of cash flows Flashcards
Q: What does the statement of cash flows show?
A: It shows movements in cash and cash equivalents during the accounting period.
Q: Are both listed and unlisted companies required to produce a statement of cash flows?
A: Yes, both listed and unlisted companies are required to prepare a statement of cash flows.
Q: Why is the statement of cash flows considered useful?
A: It provides insights into the sources and uses of cash, serving as an indicator of liquidity and solvency, beyond just accounting profit.
Q: What is the objective of IAS 7?
A: The objective is to provide historical information about changes in cash and cash equivalents, classifying cash flows into operating, investing, and financing activities.
Q: What information does the statement of cash flows provide to users?
A: It informs users about the entity’s ability to generate cash and cash equivalents and indicates its cash needs.
Q: What types of financial information are needed to prepare a statement of cash flows?
A: Information is usually obtained from the statement of profit or loss, statement of financial position, and additional transaction-related information.
Q: What does IAS 7 set out regarding the statement of cash flows?
A: IAS 7 sets out the structure of the statement of cash flows and the minimum level of disclosure required.
Q: What is included in the definition of cash flows?
A: Cash flows include inflows and outflows of cash and cash equivalents.
Q: What are the three classifications of cash flows in the statement of cash flows?
A:
Operating activities
Investing activities
Financing activities
Q: What is the relationship between profit and cash flows according to IAS 7?
A: Profit does not always reflect a company’s cash availability; cash is essential for meeting obligations like dividends and wages
Q: How does the statement of cash flows enhance comparability among entities?
A: It is not affected by differing accounting policies used for the same types of transactions, allowing for more meaningful comparisons.
Q: What activities are included in operating activities?
A: Operating activities include:
Cash receipts from sales and services.
Cash payments to suppliers and employees.
Cash flows from interest paid and income taxes paid.
Q: What methods are allowed for presenting cash flows from operating activities?
A: IAS 7 allows for the indirect method and the direct method, with the direct method preferred but not compulsory.
Q: Which method is typically used in exams for cash flows from operating activities?
A: The indirect method is usually used unless specified otherwise in the exam question
