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LESSON 10: IAS 7 Statement of Cash Flow

FINANCIALO P E R A T I O N SPAPER: F1

LECTURER : ABIODUN MAMORA

Friday, November 16, 2012LAGOS

CASHCASHFLOW

Learning Objectives

• Prepare a statement of cash flows in a form suitable

for publication

• Identify the importance of the statement of cash flow

• Identify the difference between the indirect and direct

method of calculating cash generated from operations.

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LESSON 10: IAS 7 Statement of Cash Flow

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Importance of statement of cash flowThe statement of cash flows is an important part of financial statements because:

•It helps users to assess liquidity and solvency- an adequate cash position is essential in the short term both to ensure the survival of the business and to enable debts and dividends to be paid.

•It helps users to assess financial adaptability-will the company be able to take effective action to alter its cash flows in response to any unexpected event?

•It helps the users asses future cash flows-an adequate cash position in the longer term is essential assets replacement, repayment of debt and to fund further expansion. Users will use current cash flow information to help them assess future cash flow.

LESSON 10: IAS 7 Statement of Cash Flow

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•Cash flow means survival-a company may be profitable, but if they do not have an adequate cash position, they may not be able to survive.

•It helps to highlight where cash is being generated-the cash flow statement will clearly detail cash that is being generated from the core activities of the business and other non-operating activities.

•Cash flows are objective- a cash flow is a matter of fact whereas the calculation of profit is subjective.

•It can help to indicate problems early on.

Importance of statement of cash flow-continue

LESSON 10: IAS 7 Statement of Cash Flow

Definition of IAS 7

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LESSON 10: IAS 7 Statement of Cash Flow

CashCash comprises cash on hand and at bank (including overdrafts) and demand deposits’.

Cash EquivalentCash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value, e.g short-dated treasury bill.

Operating activitiesOperating activities are the principal revenue-producing activities of the enterprise and other activities that are not investing or financing activities.

Investing activitiesInvesting activities are the acquisition and disposal of long-term assets and other investment not included in cash equivalents.

Financing activitiesFinancing activities are activities that result in changes in the size and comprise of the equity share capital and borrowing of the enterprise

Statement of cash flows for the year ended………..

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Illustration 1

LESSON 10: IAS 7 Statement of Cash Flow

Thanks!

Abiodun MamoraAbiodun Mamoraabiodunmamora@gmail.comabiodunmamora@gmail.com

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