Statement Of Cash Flows Part 1 Flashcards
What is the purpose of a Statement of Cash Flows?
To allow users to assess entity’s ability to generate cash, highlight cash usage, assist in judgements on future cash flows, allow comparisons with other entities, and provide information not otherwise available.
What are the main provisions of IAS 7?
Requirements for preparing Statement of Cash Flows, additional notes required, and prescribed format for cash flow disclosures.
What does a Statement of Cash Flows explain?
Changes in ‘cash’ balance during the accounting period.
Fill in the blank: Cash inflows are ______ in the accounting period.
cash receipts
Fill in the blank: Cash outflows are ______ in the accounting period.
cash payments
What does ‘Cash’ include according to IAS 7?
Cash at bank, cash in hand, demand deposits, bank overdrafts, and cash equivalents.
What qualifies as cash equivalents?
Short-term, highly liquid investments readily convertible to known amounts of cash with insignificant risk, defined as 3 months or less.
How are cash inflows represented in the Statement of Cash Flows?
Increases in cash without brackets.
How are cash outflows represented in the Statement of Cash Flows?
Decreases in cash with brackets.
What are the three prescribed headings under which cash flows must be disclosed?
- Operating Activities
- Investing Activities
- Financing Activities
What are the advantages of using the Direct Method for operating activities?
- Provides information not available elsewhere
- Useful in assessing future cash flows
- More understandable by non-accountants
What is the preferred method under IAS 7 for presenting operating activities?
Direct Method
What is the starting point for the Indirect Method in operating activities?
Profit before tax
List some common adjustments made in the Indirect Method.
- Add back depreciation
- Adjust for increases/decreases in trade receivables
- Adjust for changes in working capital
What are cash inflows from investing activities?
- Proceeds from sale of property, plant and equipment
- Proceeds from sale of current asset investment
- Interest received
- Investment income received
What are cash outflows from investing activities?
- Purchase of property, plant and equipment
- Purchase of current asset investment
What are cash inflows from financing activities?
- Proceeds from issuing shares
- Proceeds from long-term borrowings
What are cash outflows from financing activities?
- Repayment of long-term borrowings
- Dividends paid
- Interest paid
What information is needed to prepare a Statement of Cash Flows?
- Statement of Financial Position at start and end of current year
- Statement of Comprehensive Income for the current year
- Additional information as appropriate
True or False: The Indirect Method highlights the difference between profit and net cash flow from operating activities.
True
Fill in the blank: IAS 7 requires separate disclosure of ______ and ______ paid.
Interest, Income taxes
What adjustments are made to convert an accruals-based figure to a cash-based figure?
Opening creditor plus charge per Statement of Comprehensive Income figure less closing creditor.
What are cash outflows related to working capital adjustments?
- Increases in trade receivables and prepayments
- Increases in inventories
- Decreases in trade payables and accruals
What is the importance of reconciling figures in the cash flow template?
To ensure the statement reconciles and highlights figures used.
