Understanding CFAS: Frameworks and Standards Explained
PAS 7 cash flows - correct answer ✔✔· prescribes the requirements in the presentation of the statement
of cash flow
STATEMENT OF CASH FLOWS - correct answer ✔✔· provides information about the sources and
utilization i.e.. historical changes of cash and cash equivalents during the period
· may also provide information on the quality of earnings of an entity.
can only be prepared on a cash basis which enhances inter-comparability among different entities
because it eliminates the effects of using different accounting treatments for the same Transactions and
events
· Cash - correct answer ✔✔comprises cash on hand and cash in bank.
· Cash equivalents - correct answer ✔✔- are "short-term, highly liquid investments that are readily
convertible to known amounts of cash and which are subject to an insignificant risk of changes in value."
(PAS 7.6) * Cash flows - include inflows (sources) and outflows (uses) of cash and cash equivalents
STATEMENT OF CASH FLOWS HELPS USERS TO ASSESS: - correct answer ✔✔· the ability of the entity to
generate cash and cash equivalents, the timing and certainty of the generation of cash flows, and
· the needs of the entity to utilize those cash flows
CLASSIFICATION OF CASH FLOWS: - correct answer ✔✔· Operating activities - affect profit or loss
· Investing activities - affect non-current assets and other investments
· Financing activities - affect borrowings and equity
OPERATING ACTIVITIES - correct answer ✔✔· Cash flows from operating activities are primarily derived
from. the principal revenue-producing activities of the entity." (PAS 7.14):
PAS 7 cash flows - correct answer ✔✔· prescribes the requirements in the presentation of the statement
of cash flow
STATEMENT OF CASH FLOWS - correct answer ✔✔· provides information about the sources and
utilization i.e.. historical changes of cash and cash equivalents during the period
· may also provide information on the quality of earnings of an entity.
can only be prepared on a cash basis which enhances inter-comparability among different entities
because it eliminates the effects of using different accounting treatments for the same Transactions and
events
· Cash - correct answer ✔✔comprises cash on hand and cash in bank.
· Cash equivalents - correct answer ✔✔- are "short-term, highly liquid investments that are readily
convertible to known amounts of cash and which are subject to an insignificant risk of changes in value."
(PAS 7.6) * Cash flows - include inflows (sources) and outflows (uses) of cash and cash equivalents
STATEMENT OF CASH FLOWS HELPS USERS TO ASSESS: - correct answer ✔✔· the ability of the entity to
generate cash and cash equivalents, the timing and certainty of the generation of cash flows, and
· the needs of the entity to utilize those cash flows
CLASSIFICATION OF CASH FLOWS: - correct answer ✔✔· Operating activities - affect profit or loss
· Investing activities - affect non-current assets and other investments
· Financing activities - affect borrowings and equity
OPERATING ACTIVITIES - correct answer ✔✔· Cash flows from operating activities are primarily derived
from. the principal revenue-producing activities of the entity." (PAS 7.14):
