Which of the following statements regarding the statement of cash flows are correct?
IAS 7 Statement of Cash Flows requires an entity to present a statement of cash flows as an integral part of its primary financial statements. Cash flows are classified and presented into operating activities (either using the 'direct' or 'indirect' method), investing activities or financing activities, with the latter two categories generally presented on a gross basis. Show
IAS 7 was reissued in December 1992, retitled in September 2007, and is operative for financial statements covering periods beginning on or after 1 January 1994.
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 activities. All entities that prepare financial statements in conformity with IFRSs are required to present a statement of cash flows. [IAS 7.1] The statement of cash flows analyses changes in cash and cash equivalents during a period. Cash and cash equivalents comprise cash on hand and demand deposits, together with short-term, highly liquid investments that are readily convertible to a known amount of cash, and that are subject to an insignificant risk of changes in value. Guidance notes indicate that an investment normally meets the definition of a cash equivalent when it has a maturity of three months or less from the date of acquisition. Equity investments are normally excluded, unless they are in substance a cash equivalent (e.g. preferred shares acquired within three months of their specified redemption date). Bank overdrafts which are repayable on demand and which form an integral part of an entity's cash management are also included as a component of cash and cash equivalents. [IAS 7.7-8] Cash flows must be analysed between operating, investing and financing activities. [IAS 7.10] Key principles specified by IAS 7 for the preparation of a statement of cash flows are as follows:
* Added by Disclosure Initiative amendments, effective 1 January 2017. You will find sample IFRS statements of cash flows in our Model IFRS financial statements. Which of the following statements are true about cash flows?Answer and Explanation: The correct option is (d) Investing activities in the statement of cash flows include acquiring and selling long-term assets. We show the cash flows related to long-term assets and investments under the cash flows under financing activities in the cash flow statement.
Which of the following statements is correct relating to preparation of statement of cash flows?Answer and Explanation: Correct statement: c) In the statement of cash flows, a decrease in inventories is reported as a source of cash.
Which of the following statements regarding cash flow statement and bank account statement is correct?Option d is the correct answer.
A cash flow statement shows financial transactions of various nature that involve cash exchange, so it provides information about the ability of a business to generate future cash flows.
Which of the following statements best describes a statement of cash flows?The correct answer is option b. It shows the link between accrual-based income and the cash reported on the balance sheet. Remember that in a statement of cash flow, the operating activities section starts with the net income, and all other non-cash and non-operating expenses and revenues are adjusted to net income.
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