PAS 7 - Statement of Cash Flows
11 Questions
4 Views

Choose a study mode

Play Quiz
Study Flashcards
Spaced Repetition
Chat to lesson

Podcast

Play an AI-generated podcast conversation about this lesson

Questions and Answers

What is the main purpose of the statement of cash flows?

  • To detail the entity's total assets and liabilities.
  • To disclose information about the entity's revenue streams.
  • To provide information about the entity's profitability.
  • To show the sources and utilization of cash and cash equivalents during a period. (correct)
  • Which of the following can qualify as cash equivalents?

  • A 6-month time deposit. (correct)
  • A 9-month money market instrument.
  • A 5-year treasury bill acquired 6 months before maturity date.
  • An investment in the stock market.
  • How do cash flows impact an entity's operations?

  • Cash flows have no impact on an entity's operations.
  • Cash flows help assess an entity's ability to generate cash and its needs to utilize those cash flows. (correct)
  • Cash flows only impact an entity's financing activities.
  • Positive cash flows indicate inefficiency in operations.
  • Which of the following best describes cash equivalents?

    <p>&quot;Short-term, highly liquid investments that are readily convertible to known amounts of cash and subject to minimal risk of value change.&quot;</p> Signup and view all the answers

    How does the statement of cash flows contribute to users' assessment?

    <p>By helping assess the timing and certainty of cash flow generation.</p> Signup and view all the answers

    What does a negative cash flow from operating activities despite reported profits suggest?

    <p>&quot;A mismatch between profit recognition under accrual basis and actual cash movements.&quot;</p> Signup and view all the answers

    What are the three classifications of cash flows presented in the statement of cash flows?

    <p>Operating Activities, Investing Activities, Financing Activities</p> Signup and view all the answers

    Which activities are primarily considered when determining cash flows from operating activities?

    <p>Revenue-producing activities</p> Signup and view all the answers

    Why are cash flows from buying and selling held for trading securities classified as operating activities?

    <p>Because they are similar to inventories</p> Signup and view all the answers

    What entities consider cash flows from acquisition, rentals, and subsequent sale of property, plant, and equipment as operating activities?

    <p>Entities involved in renting out such assets</p> Signup and view all the answers

    Why are loan transactions of financial institutions considered operating activities?

    <p>Because they relate to the main revenue-producing activity of financial institutions</p> Signup and view all the answers

    Study Notes

    Statement of Cash Flows

    • Provides information about the sources and utilization of cash and cash equivalents during the period.

    Definitions

    • Cash: comprises cash on hand and cash in bank.
    • Cash Equivalents: short-term, highly liquid investments that are readily convertible to known amounts of cash and subject to an insignificant risk of changes in value.
    • Only debt instruments acquired within 3 months or less before their maturity date can qualify as cash equivalents.
    • Examples of Cash Equivalents: 1-year treasury bill acquired 3 months before maturity date, 90-day money market instrument or commercial paper, 3-month time deposit.

    Purpose of Statement of Cash Flows

    • Helps users assess:
      • The ability of the entity to generate cash and cash equivalents.
      • The timing and certainty of the generation of cash flows.
      • The needs of the entity to utilize those cash flows.
    • Provides information on the quality of earnings of an entity.
    • Enhances inter-comparability among different accounting treatments for the same transactions and events.

    Classification of Cash Flows

    • The statement of cash flows presents cash flows according to the following classifications:
      • Operating Activities
      • Investing Activities
      • Financing Activities

    Operating Activities

    • Cash flows from operating activities are primarily derived from the principal revenue-producing activities of the entity.
    • Includes cash inflows and outflows on items of income and expenses, or those that enter into the determination of profit or loss.
    • Examples of cash flows from operating activities:
      • Cash receipts from the sale of goods, rendering of services, or other forms of income.
      • Cash payments for purchases of goods and services.
      • Cash payments for operating expenses, such as employee benefits, insurance, and the like, and payments or refunds of income taxes.
      • Cash receipts and payments from contracts held for dealing or trading purposes.
    • Special items included in operating activities:
      • Cash flows from buying and selling held for trading securities.
      • Cash flows from the acquisition, rentals, and subsequent sale of items of property, plant, and equipment to be held for rental to others.
      • Loan transactions of financial institutions.

    Studying That Suits You

    Use AI to generate personalized quizzes and flashcards to suit your learning preferences.

    Quiz Team

    Description

    Learn about the requirements prescribed by Pas 7 for presenting the statement of cash flows. Understand the sources and utilization of cash and cash equivalents during a period, including the definitions of cash and cash equivalents.

    More Like This

    Use Quizgecko on...
    Browser
    Browser