Statement of Cash Flows - PAS 7

These flashcards contain key concepts and definitions related to the Statement of Cash Flows as per PAS 7, aimed to aid in learning and retention for the upcoming exam.

What is the purpose of the statement of cash flows?

It provides information about the sources and utilization of cash and cash equivalents during the period.

What are the three classifications of cash flows according to PAS 7?

Operating activities, investing activities, and financing activities.

How are cash equivalents defined under PAS 7?

Short-term, highly liquid investments that are readily convertible to known amounts of cash and subject to an insignificant risk of changes in value.

What is included in operating activities cash flow?

Cash flows from the principal revenue-producing activities, such as cash receipts from sales and cash payments for goods and services.

Give an example of an investing activity cash flow.

Cash receipts and payments in the acquisition and disposal of property, plant, and equipment.

What are financing activities?

Cash flows that affect an entity's borrowings and contributed equity, such as cash receipts from issuing shares.

What is the difference between the direct method and indirect method in preparing the statement of cash flows?

The direct method shows gross cash receipts and payments, while the indirect method adjusts profit or loss for non-cash items and changes in operating assets and liabilities.

What must an entity disclose regarding cash flows from income taxes?

They must be presented separately under operating activities unless specifically identified with financing and investing activities.

What is the significance of classifying cash flows into operating, investing, and financing activities?

It helps users assess the timing and certainty of cash flows and the entity's ability to generate and utilize cash.

How should an entity classify interest income and expenses?

Based on its main business activity, an entity may classify these cash flows as operating, investing, or financing.