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Statement of cash flows

Statement of cash flows

1.1 Objective of a statement of cash flows

 to ensure that all entities provide information about historical cash flows

 to classify those cash flows according to the activities which created them,
either operating, investing or financing activities

1.2 Reconciliation from profit before tax to cash generated from operations

$
Profit before tax X

+/– Non-cash items included X/(X)

(e.g. depreciation)
+/– Non-operating items included X/(X)
(e.g. investment income)

+ Finance costs X
+/– movements in working capital X/(X)

——
Cash generated from operations X

——

Note that this is the indirect method, the direct method is shown below.

Illustrations and further practice

For further detail of adjustments see section 1 in Chapter 22 of the Study Text.

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