CertIFR Course

Statement of Cash Flows: IAS 7

A statement of cash flows is a primary statement required by IAS 1. IAS 7 provides

the format of a statement of cash flows and guidance on classifying cash flows for
presentation purposes.

The statement of cash flows explains the movement in cash and cash equivalents
from the start to the end of a period.
The total net cash flow should therefore reconcile to this amount.

Cash equivalents are somewhat vaguely defined as "short-term highly liquid

investments that are readily convertible to known amounts of cash, and...[carry]
an insignificant risk of changes in value.“ ( Bonds for example )
 CertIFR Course

Statement of Cash Flows: IAS 7

Classification of cash flows
 CertIFR Course

Statement of Cash Flows: IAS 7

Interest and dividend payments and receipts must be disclosed separately.

Interest and dividend receipts may be classified as operating or investing cash flows

Interest and dividend payments may be classified as an operating or a financing cash flow.

In the case of capitalised interest, they form part of the cost of an asset and so are investing cash
flows.

Cash generated from operations

Cash flows from operating activities include cash generated by operations i.e. from
conducting business. These include sales receipts, purchases and overheads.
 CertIFR Course

Statement of Cash Flows: IAS 7

These cash flows can be calculated either:

Directly, by observing cash receipts and payments, or

Indirectly, by adjusting profit for non-cash items and the effect of accrual
accounting.

Regardless of the method used, the answer will be the same.

The following is an example of the indirect method of calculating Cash flows from
Operating Activities:
 CertIFR Course

Statement of Cash Flows: IAS 7

 CertIFR Course

Statement of Cash Flows: IAS 7

Additional points

Actual or average exchange rates should be used for cash flows from a foreign
subsidiary.

Non-cash transactions should not be included in the statement of cash flows,

but should be disclosed in the notes.

A disclosure note should show changes during the year in liabilities arising from
financing activities (e.g. bank loans). Changes may include cash transactions
and non-cash movements such as exchange differences.