It is useful to assess the ability to generate
cash and needs to utilize the cash flows.
The objective of IAS 7 is to require the
presentation of information about the
historical changes in cash and cash
equivalents of an entity by means of a
statement of cash flows, which classifies
cash flows during the period according to
operating, investing, and financing
Applicable to all and to be prepared as
financial statement every year with other
Presentation of Cash flow Statement :
In the sequence of three activities
(Actual Cash Flow Statement)
1. Cash in flow from sales of goods & services.
2. Cash flow from other revenues.
3. Cash out flow to supplies of goods & services.
4. Cash payments to and on behalf of employees.
5. Cash inflow & outflow related to insurance.
6. Cash inflow & outflow of tax.
7. Cash inflow & outflow from contracts related to
dealing or trading purpose.
1. Cash payment to get non current assets including
capitalized development cost.
2. Cash receipts from sale of non current assets.
3. Cash payments to acquire equity or debt
instruments of other enterprises & interests in joint
4. Cash receipts from sale of (3)
5. Cash advances & loans made to other parties.
6. Cash receipts from repayment of (5)
7. Cash payment for futures, forwards, options &
8. Cash receipt from sale of 7
1. Cash inflow from issue of shares or other
2. Cash outflow to acquire or redeem shares.
3. Cash inflow from short or long term
4. Cash repayments of amounts borrowed
5. Lease related payments.
Reporting Cash flows from
An enterprise should report cash flows from
operating activities using either of the
• Direct method
• Indirect method
In this method major classes of gross cash
receipts and payments are disclosed
In this method net profit or loss is adjusted
• Non cash transactions,
• Deferrals and accruals and
• Items of income or expense related to investing and
Reporting Cash flows from
investing and financing activities
Investing and financing activities are
recorded in the same way both in indirect
and direct methods.
Investing & Financing Activities
- Reporting Cash flows on Net
On behalf of customers, when cash flows reflect
the activities of customer rather than of enterprise.
Where turnover is quick, the amounts are large
and maturities are short.
Examples of 1:
1. Bank accounts of customers
2. Commission based transaction
3. Funds held for customers by an investment
Examples of 2:
• Principal amounts relating to credit
• The purchase and sale of investments
• Other short term borrowings having 3-
months or lesser maturity
Foreign Currency Cash flows:
At the date of cash flow the exchange rate
should be applied & in the currency of
enterprise the amount should be reported.
It should be done following IAS-21-Effects
of changes in foreign exchange rate.
Cash flows related to extraordinary items
related to three activities should be shown
under three heads separately and
Interest & Dividend:
The cash flows from interest &
dividends should be disclosed
separately. Each should be classified in
each of three categories.
Taxes on Income:
Should be classified as cash flows from
Acquisition & Disposal of
Should be classified in investing activities.
Further the total amount of each inflow
from disposal and outflow from acquisition
should be mentioned Cash/Cash equivalents
and other assets should also be separately
These should not be disclosed in cash flow
statement but elsewhere to show relevant
Components of Cash &
These should be disclosed and a
reconciliation of the amounts should be
shown in the cash flow statement with
equal items in balance sheet.
An enterprise should disclose the amount of
cash and cash equivalents that are not
available for use by the group.