Statement of Cash Flows:

 Under IAS 7 all limited companies above a certain size are required to produce a statement
of cash flows.
 A statement of cash flows reports the various different inflows and outflows of cash during a
period of time.
 The total of all those inflows and outflows should equal to the change in cash/bank balance
from the beginning of the year to the end
 How do we prepare a SOCF under IAS 7
 3 sections:
o CF from Operating Activities (Remove all non-cash elements from income statement
profit)
o Indirect Method: Reconcile Profit from operations (income statement) into Cash
flow from operations.
 Profit from operations (Operating profit before interest and taxes (add back
interest expenses and tax expense))
(+) Depreciation Expense
(+/-) loss/gain from disposal of Fixed Asset
= Operating Cash flow before working capital changes
(+/-) Decrease/Increase in any current asset ex cash,tax, and interest
(usually inventory, trade receivables)
(+/-) Increase/Decrease in any current liability ex cash,tax, and interest
(usually trade payable)
= Cash Generated from Operations
(-) Tax Paid (Last year’s taxes)
(-) Interest Paid
(+) Interest Received
= Net cash from Operating Activities
o CF from Investing Activities (Cash flow from buying and selling NCA)
 (+) Proceeds from sale of FA
(-) Purchase of new FA
= Net cash from Investing Activities
o CF from Financing Activities (Cash flow from issuing and redeeming debt or shares
aside from interest but including dividends)
 (+) Any new issue of shares or debt
(-) Any share or debt redemption
(-) Dividends paid
= Net cash from Financing Activities
Net Increase/Decrease in Cash
Cash at beg of year
Cash at end of year
Net Increase/Decrease in Cash

 SOCF can be used to evaluate the liquidity of a business. Having more cash on hand usually
means a better ability to pay back future debts.