📖 Overview
This standard requires entities to prepare a statement of cash flows as part of their complete set of financial statements. Cash flows are classified into three activities: operating (from main operations), investing (purchase and sale of long-term assets), and financing (borrowing, repayment, and equity).
🎯 Scope
This standard applies to all entities preparing financial statements in accordance with IFRS. It requires the preparation of a statement of cash flows as part of a complete set of financial statements, regardless of the nature of the entity's activities.
⚙️ Key Principles
1. **Classification of Cash Flows**: Cash flows are classified into three activities:
- **Operating**: Cash flows from the entity's main activities.
- **Investing**: Purchase and sale of long-term assets.
- **Financing**: Borrowing, loan repayment, and share issuance.
2. **Two Methods for Operating Cash Flows**:
- **Direct Method**: Shows actual cash receipts and payments.
- **Indirect Method**: Starts with net profit and adjusts for non-cash items and working capital changes.
3. **Cash and Cash Equivalents**: Includes physical cash, demand deposits, and short-term investments (3 months or less).
📏 Measurement
**Cash and Cash Equivalents:**
- Physical cash (notes and coins).
- Demand deposits (current accounts).
- Short-term, highly liquid investments (maturity of 3 months or less).
- Bank overdrafts (may be netted against cash under IFRS).
**Not considered cash equivalents:**
- Restricted cash (for more than 3 months).
- Long-term investments.
✅ Recognition
Cash flow is recognized when it actually occurs (cash basis, not accrual basis):
- Cash receipts are recorded when cash is received.
- Cash payments are recorded when cash is paid.
- Interest and taxes are classified as either operating or financing based on their nature.
📊 Presentation
The statement of cash flows is presented as a separate primary statement within the financial statements. It must show:
- Net cash flows from operating activities.
- Net cash flows from investing activities.
- Net cash flows from financing activities.
- Net increase/decrease in cash and cash equivalents.
- Cash and cash equivalents at beginning and end of period.
📝 Disclosure Requirements
Disclosures required:
- Accounting policy for determining cash and cash equivalents.
- Components of cash and cash equivalents.
- Amount of restricted cash and reasons for restriction.
- Reconciliation between direct and indirect methods (if indirect method used).
- Non-cash investing and financing activities (in the notes).
🔗 Related Standards
IAS 1 (Presentation of Financial Statements), IAS 21 (Effects of Changes in Foreign Exchange Rates), IFRS 9 (Financial Instruments)