IAS 7, or International Accounting Standard 7, is a standard that deals with the presentation of cash flow statements. The main objective of IAS 7 is to require companies to provide information about their cash flows during a given period.
Under IAS 7, companies are required to prepare a statement of cash flows that reports the cash inflows and outflows during the period. The statement of cash flows is divided into three sections:
- Operating Activities: This section reports the cash flows from the company’s primary operations. This includes cash receipts from customers and cash payments to suppliers and employees.
- Investing Activities: This section reports the cash flows from the company’s investments. This includes cash inflows from the sale of assets and cash outflows for the purchase of new assets.
- Financing Activities: This section reports the cash flows from the company’s financing activities. This includes cash inflows from the sale of stock or issuance of debt and cash outflows for the payment of dividends or the repayment of debt.
In addition to the statement of cash flows, companies are also required to provide a reconciliation of their net profit or loss to their cash flows from operating activities. This helps investors and stakeholders understand the relationship between the company’s net profit or loss and its cash flows.
Overall, IAS 7 helps to provide investors and stakeholders with important information about a company’s cash flows, which is critical to understanding a company’s financial health and future prospects.