IAS 7: Cash Flow Statement

Question 1

Explain the following terms:

Answer 1

1) Cash: Cash on hand, demand deposits & Bank overdraft.
2) Cash equivalents: Short-term, highly liquid investments.
3) Operating Activities: Principal revenue-producing activities.
4) Investing Activities: Acquisition & disposal os long term assets and other investments.
5) Financing Activities: Results in changes of the size & composition of equity & borrowing.

Question 2

Distinguish between direct method and indirect method?

Answer 2

Direct: Major classes of receipts & payments arising from operating activities are disclosed then aggregated.
Indirect: PBIT then lots of adjustments (state) before operational & financing