International Accounting Standard 7
Statement of Cash Flows
Purposes of Statement of Cash Flow
(a) To provide information about the cash receipts and cash payments of an entity during a
period. Important information for financial statement users because many feel that
accrual accounting does not present true picture.
(b) To summarize the cash inflows and outflows from operating, investing and Financing
activities of the business.
Cash Flows: Cash flows are inflows and outflows of cash and cash equivalents
Cash Inflows: (Source of Cash) (Incoming cash in business)
Cash Outflows: (Use of Cash) (Outgoing cash from business)
Questions to be answered by Cash Flow Statement……
1)
2)
3)
4)
Whether sufficient cash flow is generated from activities?
Will the company be able to meet its financial obligations?
Will the company be able to pay dividend to shareholder?
Why there is a difference between Net Income reported and net cash flow in the
business?
5) What amount of Funds were generated by the issuance of shares, bonds and sale of
fixed assets etc…?
6) What were spent during the year on Purchase of Fixed assets, Retirement of Bonds,
Repayment of Debt, Repurchase of Shares etc..?
Classification of Source and Use of Cash
Source of Cash
Net Profit
Decrease in Non-Cash Asset
Increase in Liabilities
Increase in Capital Stock
Use of Cash
Net Loss
Increase in Non-Cash Asset
Decrease in Liabilities
Decrease in Capital Stock
Dividend paid to Shareholders
Division of Activities:
1- Operating Activities
2- Investing Activities
3- Financing Activities
1- Operating Activities: Operating activities are the principal revenue-producing
activities of the enterprise. Therefore they generally result from the transactions and other
events that enter into the determination of net profit or loss.
 The net result of income statement in the shape of Net Profit or Loss is reported in
the operating activities.
 All those transactions which are relevant with current assets and current liabilities
are reported in operating activities.
 All those transactions which affect non-current assets and non-current liabilities
and reported in income statement such as Depreciation, Depletion and
Amortization of Discount on bonds, Amortization of Premium on bonds are also
included in operating activities,
 Gain or loss on disposal of non-current assets is also reported in operating
activities.
2- Investing Activities: All those transactions that are related with the acquisition or
disposal of Long-term assets are reported in Investing Activities.
3- Financing Activities: Transactions relevant with long term liabilities and owner’s
equity are reported in financing activities. For example Purchase of Treasury Stock, Issue
of Shares. Cash proceeds from issuing Bonds, debentures etc.
Question: Whether the direct exchange transactions are reported in cash flow statement?
Ans: The direct exchange transactions are not reported in cash flow statement. These
transactions should be reported as a foot note in cash flow statement.
Examples of Direct Exchange Transactions:



Shares issued against purchase of building, land and other fixed assets.
Shares may be issued for retirement of Bond, Debt etc.
Land and building may be received as a gift.
SCHEDULE OF CASH FLOW STATEMENT
$
CASHFLOWS FROM OPERATING ACTIVITIES
Profit before Tax
Add / (Less) : Adjustment for:
Depreciation
Interest Expense
Interest Income
Depletion
Amortization of Discount on Bonds Payable
Amortization of Premium on Bonds Payable
Gain on disposal of Non-Current Assets
Loss on disposal of Non-Current Assets
Operating Profit before Working Capital Changes
Add/ (Less) : Working Capital Changes
Increase in Receivables
Increase in Inventory
Decrease in Receivables
Decrease in Inventory
Increase in Payables
Decrease in Payables
Cash Generated from operations
Add / (Less):
Interest Paid
Interest Received
Tax Paid
Dividend Paid
Net Cash Flow From Operating Activities
CASHFLOWS FROM INVESTING ACTIVITIES
Purchase of Fixed Assets
Sale of Fixed Assets
Purchase of Investment
Receipt of Govt. Grant
Net Cash Used in Investing Activities
CASHFLOWS FROM FINANCING ACTIVITIES
Increase In Long-term Liabilities
Decrease in Long-term Liabilities
Increase in Capital Stock
Decrease in Capital Stock (Treasury Stock)
Share Premium
Net Cash Flows From Financing Activities
Net Increase/ (Decrease) in Cash and Cash Equivalents
Add: Opening Cash Balance
Cash and Cash Equivalents - - End of Period
$
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