ADVANCED FINANCIAL REPORTING CASHFLOWS PLUS

This is a notable difference in comparison to current UK GAAP (FRS 1). PresentationĮntities reporting under IFRS are mandatorily required to prepare a statement of cash flows in accordance with IAS 7 principles. Sales revenue contributes to receivables in the statement of financial position at the period end. Sales revenue contributes to receipts from receivables in the statement of cash flows Sales revenue contributes to revenue in the statement of comprehensive income The statement of cash flows, however, will contain the actual tax paid in the year.Īs you can see from the examples above, transactions within a complete set of financial statements will often be represented differently, for example if we consider sales revenue from 1 January to 31 December: In today’s economic climate, it is not uncommon for entities to agree an instalment plan with HM Revenue and Customs and therefore, in the UK, as corporate taxes are paid nine months’ and one day after the reporting period, then there could be part of the previous year’s tax liability contained in the current year’s liability. The statement of financial position will show the liability owed to the tax authorities as at the reporting date. The statement of comprehensive income will show the taxation charge on the profits for that reporting period together with any over/under provision from previous periods. Sometimes users of financial statements will want to know, for example, how much income tax an entity has paid in the reporting period. Cash and cash equivalents are classed as: When preparing a statement of cash flows, you will often come across the term ‘cash and cash equivalents’. The same objective is also applied in FRS 1. The objective of the statement of cash flows is to provide the user of the financial statements with information as to how the reporting entity has generated cash during the reporting period and how the entity has spent that cash during the reporting period. By definition, the statement of cash flows is prepared on a cash basis, rather than an accruals basis. The statement of cash flows, however, does not accord to this principle. This concept requires that transactions and events are accounted for within the financial statement as they arise, as opposed to when they are paid. In view of the fact that it is a primary financial statement, then it must be given the same prominence as the other primary financial statements: the statement of comprehensive income (the income statement), the statement of financial position (the balance sheet) and the statement of changes in equity.ĭuring financial reporting studies, you will have come across the IASB’s ‘accruals concept’. The statement of cash flows is a primary financial statement. This article will be primarily concerned with the provisions in IAS 7, but throughout we will be referring to some notable differences to its UK FRS 1 counterpart.

If you are studying under a UK variant of financial reporting, then you will look to the provisions in FRS 1 Cash Flow Statements.

The statement of cash flows features in the provisions laid down in IAS 7 Statement of Cash Flows. It will also focus on the purpose of the statement of cash flows in an attempt to illustrate why the statement is prepared because understanding the reasoning behind why we do something assists us greatly in actually performing the task.

This article looks at the key aspects of the statement of cash flows and will also look at how the statement differs depending on which GAAP you are sitting. The statement of cash flows is renowned for causing varying degrees of problems with students because depending on the level of financial reporting paper you are sitting will depend on the level of complexity you are expected to deal with when dealing with this primary financial statement. Students of financial reporting papers will need to develop a sound understanding of the primary statement known as the ‘Statement of Cash Flows’.

ADVANCED FINANCIAL REPORTING CASHFLOWS PLUS

This article is relevant for ACCA F7 and P2 plus AAT and CIMA papers.

Advanced financial reporting cashflows