Statement of Cash Flows (IAS 7)

Purpose: Profits are calculated on accrual basis but important to consider cash position of a
company thus cash flow statements play a vital role. A Statement of Cash Flows is simply a
summary of the cash receipts and payments.
Methods of preparing Statement of cash flows
1) The indirect method
2) The direct method

The indirect method

Statement of Cash flows for the year ending 31 December 20X0

$000 $000

Cash flows from operating activities

Profit before tax (PBT) X

Adjustments for:
Depreciation X
(Gain)/loss on disposal of non-current assets (X)/X
Interest expense X
X

Operating profit before working capital changes

(Increase)/decrease in receivables (X)/X
(Increase)/decrease in inventory (X)/X
Increase/(decrease) in payables X/(X)
X

Cash generated from operations X

Interest paid (X)

Taxation paid (X)
Dividends paid (X)

Net cash flows from operating activities X/(X)

Cash flows from investing activities

Purchase of non-current assets (X)

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Sale proceeds of non-current assets X
Interest received X
Dividends received X

Net cash flows from investing activities X

Cash flows from financing activities

Proceeds from issue of shares X

Repayment of debenture loan (X)

X
Net cash flows from financing activities

Net increase in cash & cash equivalents X

Cash and cash equivalents b/d X
Cash and cash equivalents c/d X

Workings

Interest expense payable account

$ $

Interest accrual b/f X

Cash paid (balancing
figure) X SOPL X

Interest accrual c/d X

X X

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 Interest receivable account
$ $

Interest receivable b/f X

SOPL X Cash received (balancing figure) X

Interest receivable c/d X

X X

Non-current assets (CV) account

$ $

Carrying value b/f X

Disposal at carrying value X
Additions at carrying
value Depreciation X
Revaluation X Carrying value c/d X

X X

Tax payable account

$ $

tax accrual b/f X

Cash paid (balancing
figure) X SOPL X

tax accrual c/d X

X X

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Direct method
The layout for arriving at the cash flow from operations is as follows:

$
Cash received from customers X
Cash payments to suppliers X
Cash paid to and on behalf of employees X
Other cash payments X

Net cash flows from operating activities

❖ The remaining statement of cash flows format will be same.

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