 identify the important terminology and definitions which relate to the presentation of the statement of cash flows in the financial statements  understand the objectives and scope of IAS 7 Statement of cash flows On completion of this chapter you should be able to: It includes the requirement for a statement of cash flows to be presented. IAS 1 Presentation of financial statements sets out the content of an entity’s financial statements. This chapter covers the preparation and presentation of a statement of cash flows as part of The financial information is therefore not complete without the cash flow information, which may tell a different story to the original assessment of an entity’s performance. An entity may have a strong financial position and good performance during the period, but may also have suffered significant cash outflows. When used alongside a statement of financial position, for example, a statement of cash flows provides users with information on the changes in net assets of the entity. For an investor to be able to assess the effectiveness of a business, it is important that information is included in the financial statements not only on the entity’s performance and financial position but also on its cash flows. Cash management is not just about surviving it is about the process of utilizing cash resources to their optimal effect. Cash is about the liquidity of a business, and hence cash flows concern the change in that liquidity. It is possible for a highly profitable entity to have liquidity problems if it does not manage the flow of cash within its business effectively. Cash and liquidity are different concepts to profit. If an entity is unable to pay its debts as they fall due, then it risks insolvency. An entity’s operating cycle is the period of time that a normal operating transaction takes to complete within a business, for example the time between the receipt of the order to final payment being made by the customer. Cash, or access to cash, is needed to pay for an entity’s outlays on a continuing basis and is a fundamental part of its operating cycle. Cash is essential if a business is to continue its operations.

Definition of a statement of cashflows