IAS 7 "Statement of Cash Flows"

IAS 7 "Statement of Cash Flows" is an international accounting standard that sets out the principles for presenting information about the changes in cash and cash equivalents of an entity for a specific reporting period in the form of a statement of cash flows. The statement of cash flows, as required by IAS 7, provides insights into an entity's ability to generate cash and cash equivalents, enabling users of financial statements to develop models to assess and compare the cash-generating ability of different entities. Here are the key aspects of IAS 7:

1. Purpose of the Statement of Cash Flows: The statement shows the changes in an entity’s cash and cash equivalents during a period, classified into operating, investing, and financing activities.

2. Operating Activities: Cash flows from operating activities generally result from the transactions and other events that enter into the determination of profit or loss. IAS 7 allows the presentation of operating cash flows using either the 'direct' or 'indirect' method.

3. Investing Activities: Cash flows from investing activities are related to the acquisition and disposal of long-term assets and other investments not included in cash equivalents. Examples include payments to acquire property, plant, and equipment or receipts from the sale of such items.

4. Financing Activities: Cash flows from financing activities are related to changes in the size and composition of the equity capital and borrowings of the entity. Examples include proceeds from issuing shares or debt, repayments of borrowings, and payments of dividends.

5. Cash and Cash Equivalents: Cash comprises cash on hand and demand deposits. Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash and subject to an insignificant risk of changes in value.

6. Reporting Cash Flows: The standard requires entities to report the gross receipts and gross payments for operating, investing, and financing activities, providing a clear picture of cash flow for each activity.

7. Foreign Currency Cash Flows: Cash flows arising from transactions in a foreign currency are reported in an entity's functional currency by applying the exchange rate between the functional currency and the foreign currency at the date of the cash flow.

8. Interest and Dividends: Cash flows from interest and dividends received and paid should be separately disclosed and classified in a consistent manner from period to period either as operating, investing, or financing activities.

9. Non-cash Transactions: Non-cash investing and financing activities that do not require the use of cash or cash equivalents are excluded from the statement of cash flows but need to be disclosed elsewhere in the financial statements.

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