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Financial Accounting 202_S2_2023

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IAS 7 Statement of cash flows

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Topic title: IAS 7 Statement of cash flows Sub-topic title: Cash flows statement activities and calculations

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Competence/Attributes
1.      Prepare statement of cash flows
 
Learning Outcomes:
2.      Explain cash flows activities
3.      Calculate operating cash flows using
both the direct and indirect methods
Operating activities
Cash flows from operating activities are, in general, the cash effects of transactions and oth
events relating to operating or trading activities.  This can be measured by a direct or indire
method.
Investing Activities
·        Cash inflows from investing activities include: Interest received in cash terms, dividen
received in cash terms, proceeds from the sale of property, plant and equipment
·        Cash outflows from investing activities include: payments made for investments in or
loans to other entities, payments made for the purchase of non-current (fixed) assets such
property, plant and equipment, payments made for the acquisition of subsidiaries.
Financing Activities
·        Financing cash inflows include: proceeds from the issue of share capital or other equ
instruments; proceeds from long term borrowings (such as issuing debentures or taking out
loans).
·        Financing cash outflows include: payments to owners to acquire or redeem shares,
repayments of amounts borrowed, equity dividends paid.
Methods of cash flows calculation
There are two methods of calculating cash from operations – the direct or indirect method.
method used will depend upon the information provided within the question. 
·        Direct method: this method uses information contained in the ledger accounts of the
company to calculate the cash from operations figure as follows:    
Cash sales                                                                     X
Cash received from debtors                                          X
                                           X
Less:
Cash purchases                                         X
Cash paid to credit suppliers                    X
Cash expenses                                           X             (x)
Cash generated from operations                              xx
·        Indirect method: This method reconciles between profit before tax (as reported in the
income statement) and cash generated from operations as follows:
Content Prerequisites

-        Cash flows -        Conceptual

activities framework

-        Methods of cash -        Double entry

flows calculation principles

   

Prescribed text: Remark

-        Service C. L -        Read up on the

(Latest) Gripping meaning of cash flows
GAAP: Your Guide to statement
International Financial
Reporting Standards,  
LexisNexis

Profit before tax                             X Increase/(decrease) in trade

payables                    X/(X)
Finance
cost                                                                    Cash generated from
 X operations                               X

Investment
income                                                        (X)

Depreciation charge                        
                               X

Loss/(profit) on disposal of noncurrent

assets       X/(X)

(Increase)/decrease in inventories
                          (X)/X 

(increase)/decrease in trade
receivable                  (X)/X                        
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