IAS 7

Statement of
Cash Flows
 Cash Position

Inflows

Outflows
Objective of IAS 7
• Provide useful information for user decisions
• Highlight the components of cash under standard
headings
• Facilitate comparison between entities
• Facilitate assessment of liquidity, viability and
financial adaptability of a company
 Definitions
• Cash and cash equivalents comprise cash on hand and
demand deposits, together with short-term, highly
liquid investments that are readily convertible to a
known amount of cash, and that are subject to an
insignificant risk of changes in value.
 Definitions
• Operating activities- are the main revenue-producing
activities of the entity that are not investing or
financing activities, so operating cash flows include
cash received from customers and cash paid to
suppliers and employees
• Investing activities - are the acquisition and disposal of
long-term assets and other investments that are not
considered to be cash equivalents
• Financing activities- are activities that alter the equity
capital and borrowing structure of the entity
Treatment of interest, dividends and taxation
• Disclose separately
• Taxation: operating activities
• Interest and dividends received: either operating or
investing activities
• Interest paid: operating or financing activities
• Dividends paid: operating or financing activities
Standard Presentation for the
Statement of Cash flows
Cash flows from operating activities

Plus or minus

Cash flows from investing activities

Plus or minus

Cash flows from financing activities

Equals
Net increase (or decrease) in cash and cash
equivalents over the period
Deducing net cash flows from
operating activities

The direct
method
The indirect
method
 The indirect method
Profit before taxation
Plus
Depreciation Expense
Plus
Interest Expense
Plus or minus
Increase (minus) or Decrease (plus) in inventories
Plus or minus
Increase (minus) or Decrease (plus) in tr. receivable
Plus or minus
Increase (plus) or Decrease (minus) in tr.payables
Less
Interest paid
Less
Taxation paid
Less
Dividend paid*
Equals
Net cash flows from operating activities
General rules
• Increase in an asset implies an outflow of cash
• Decrease in an asset implies an inflow of cash

• Increase in a liability implies an inflow of cash

• Decrease in a liability implies an outflow of cash

• These rules hold for the reconciliation from net profit to

net cash from operations, but do not apply to non-cash
items such as depreciation or accounting gains/losses