Technical Summary
This extract has been prepared by IASC Foundation staff and has not been approved by the IASB.
For the requirements reference must be made to International Financial Reporting Standards.
IAS 7 Statement of Cash Flows
The objective of this Standard is to require the provision 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 from operating, investing and
financing activities.
Cash flows are inflows and outflows of 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 which are
subject to an insignificant risk of changes in value.
Information about the cash flows of an entity is useful in providing users of financial
statements with a basis to assess the ability of the entity to generate cash and cash
equivalents and the needs of the entity to utilise those cash flows. The economic
decisions that are taken by users require an evaluation of the ability of an entity to
generate cash and cash equivalents and the timing and certainty of their generation.
The statement of cash flows shall report cash flows during the period classified by
operating, investing and financing activities.
Operating activities
Operating activities are the principal revenue-producing activities of the entity and
other activities that are not investing or financing activities. Cash flows from
operating activities are primarily derived from the principal revenue-producing
activities of the entity. Therefore, they generally result from the transactions and
other events that enter into the determination of profit or loss.
The amount of cash flows arising from operating activities is a key indicator of the
extent to which the operations of the entity have generated sufficient cash flows to
repay loans, maintain the operating capability of the entity, pay dividends and make
new investments without recourse to external sources of financing.
An entity shall report cash flows from operating activities using either:
(a) the direct method, whereby major classes of gross cash receipts and gross cash
payments are disclosed; or
(b) the indirect method, whereby profit or loss is adjusted for the effects of
transactions of a non-cash nature, any deferrals or accruals of past or future
operating cash receipts or payments, and items of income or expense associated
with investing or financing cash flows.
