Statement of Cash Flows

Question 1

Purpose of the Statement of Cash Flows

Answer 1

evaluate the entity’s financial structure

assess the entity’s ability to generate cash in the future and predict future cash flows

check the accuracy of past assessments of future cash flows

examine the relationship between profitability and net cash flow

Question 2

Format

Answer 2

the statement must contain separate disclosure of cash inflows and outflows, classified as arising from operating, investing or financing activities, as appropriate

certain cash flows must be disclosed as separate items, and classified consistently from period to period regardless of the classification of cash flows used

• interest received and paid
• dividends received and paid
• income tax paid

Question 3

Concept of Cash

Answer 3

cash on hand and cash equivalents

cash equivalents are short‐term highly liquid investments that are readily convertible into known amounts of cash, and that are subject to an insignificant risk of changes in value

Question 4

Operating Activities

Answer 4

principal revenue‐producing activities of the entity and other activities that are not investing or financing activities

very important because they represent cash flows generated by the entity’s major business operations

Question 5

Investing activities

Answer 5

those that relate to the acquisition and disposal of long‐term assets and other investments that are not included in cash equivalents

Question 6

Financing Activities

Answer 6

activities that relate to changes in the size and composition of the equity and borrowings of an entity give rise to cash flows from financing activities

Question 7

Notes to the Statement

Answer 7

note to disclose the items included in the cash and cash equivalents balance at the end of the period and to reconcile this balance to cash assets in the statement of financial position

note to reconcile the net cash used in operating activities to profit or loss

notes to discuss non‐cash financing and investing activities

Question 8

Limitations

Answer 8

past cash flows reported

non‐cash transactions and events

disclosures in notes to the statement

liquidity/solvency

management manipulation

costs