How to prepare Statement of cash flow IAS 7: step by step procedure

Prepare Statement of cash flow

Its structure is as follows:

• We start with profit / loss for the period before tax.
• Profit and loss is adjusted for non-cash items such as depreciation, terms and other items related to investment and financing activities.
• This gives the operating profit before capital change.
• Then working capital changes, i.e. increases or decreases in current assets and liabilities are added / subtracted (remember, cash and cash equivalents are not included here).
• This gives cash flow from operations.
• In this figure we add / subtract cash flows from investment and financing activities.
• This gives us a net increase / reduction in cash and cash equivalents.
• In this figure we add a cash and cash equivalent opening balance (which we exclude from current assets).
• This gives us an end-to-end balance of cash and cash.
• The difference between opening and closing the balance of accounts specified in the balance sheet is usually increased or decreased.

Different wordsCash Flow from Operating Activities:

Cash flow from operating activities is generally derived from the business's core income-generating activities.

Examples of cash flow from operating activities include:

• Cash receipts from goods sold and rendering services.
• Cash receipts from fees, royalties, commissions and other revenue.
• Payment of cash to suppliers for goods and services.
• Cash payment on behalf of employees.
• Cash payment or income tax refund.

Cash Flows from Investment Activities:

Cash flows from investment activities are cash receipts and payments from the firm's fixed and long-term assets.

Examples of Cash Flows from Investment Activities:

• Payment of cash to acquire property plant and equipment. These include payments made for self-made assets.
• Cash receipts from sale of property plant and equipment.
• Cash payments and receipts from acquisitions and settlements Other long-term assets e.g. Shares, debentures, TFCs, long-term loans etc.
• If the assets are for business purposes or in the normal course of business. Loans given by car / property dealers and banks, then the cash flows from them are included in the operating cash flows.

Cash flow from financing activities

Cash flows from financing activities include cash receipts and payments arising from business owners and other long-term liabilities of the company.

Examples of cash flow from financing activities include:

• Cash received from employers means the issuance of shares invested by the sole proprietor or partners in terms of company and capital.
• Cash payment to employers means dividends, drawing, etc.
• Payments for cash receipts and other long-term loans and loans.
• It is the ability to pay the debts of the business in a timely manner. Having good liquidity means that a business has enough money (cash and cash equivalents) to repay its liabilities.

Cash

Cash has cash and demand deposits in hand.

Cash equivalent

Cash equivalents are short-term investments that can be converted to known amounts at any time. Investments typically have a maturity of up to three months in cash equivalents.