FRS 7 prescribes the principles in preparing cash flow statements.
The standard requires the provision of information about historical changes in cash and cash equivalents of a company by means of a cash flow statement that classifies cash flows during the period by operating, investing and financing activities.
Operating activities are the principal revenue-producing activities of the enterprise. Cash flows from operating activities are disclosed either using the:-
a) direct method (disclosure of major categories of gross cash receipts and payments); or
b) indirect method (profit or loss for the period is adjusted for non cash items (such as depreciation, foreign exchange losses etc.) and income or expense related items related to investing and financing activities to determine the operating cash flows.
Investing activities are those expenditures incurred with an intention to generate future income and cash flows.
Financing activities are those expenditures incurred that result in changes in the size and composition of the contributed equity and borrowings of the entity.
“Do you know the definition of “cash and cash equivalents”? Can you name some examples of cash equivalents?”, ask Edgar.
Source – ICPAS ePublication 22 November 2005 Issue 11/2005