Page 143 - F1 Integrated Workbook STUDENT 2018

Introduction to Single Entity Accounts including Statement of
Cashflows

3.7 Cash generated from operations

The first main heading in the standard statement of cash flows proforma per IAS 7 is
‘cash flows from operating activities. This can be broken down into 'cash generated
from operations’ (which is the focus of this section) and other cash flows from
operating activities.

There are two ways the cash generated from operations can be calculated.

The indirect method is the most likely to be examined in F1.

3.8 Indirect method

This method (shown in the above proforma), involves taking the profit before taxation
from the statement of profit or loss, adjusting it for non-cash items and converting the
income and expenses figure from the accruals basis to the cash basis, so that just
the cash flows from operating activities remain.

3.9 Statement of cash flows (Direct method)

This method involves simply adding cash inflow and deducting cash outflows in
respect of operating activities.
$
Cash receipts from customers X
Cash payments to suppliers (X)
Cash payments to employees (X)
Cash payments for expenses (X)
––––
Cash generated from operations X
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