Cash Flow Statement Guide

Cash Flow Statements 19
Benefits of Cash Flow Information
3. A cash flow statement, when used in conjunction with the other financial
statements, provides information that enables users to evaluate the change
s
in net assets of an enterprise, its financial structure (including its liquidity an
d
solvency) and its ability to affect the amounts and timing of cash flows i
n
order to adapt to changing circumstances and opportunities. Cash flo
w
information is useful in assessing the ability of the enterprise to generat
e
cash and cash equivalents and enables users to develop models to assess
and compare the present value of the future cash flows of differen
t
enterprises. It also enhances the comparability of the reporting of operatin
g
p
erformance by different enterprises because it eliminates the effects o
f
using different accounting treatments for the same transactions and events.
4. Historical cash flow information is often use
d
as an indicato
r
of the
amount, timing and certainty of future cash flows. It is also useful in checkin
g
the accuracy of past assessments of future cash flows and in examining th
e
relationship between profitability and net cash flow and the impact o
f
changing prices.
Definitions
5. The following terms are used in this Standard with the meanings
s
peci
f
ied:
5.1 Cash
com
p
rises cash on hand and demand de
p
osits wi
t
h banks.
5.2 Cash equivalents
are short term
,
hi
g
h
l
y
liquid investments tha
t
are readily convertible into known amounts of cash and which ar
e
sub
j
ec
t
t
o an insi
g
ni
f
ican
t
risk o
f
chan
g
es
nvalue.
5.3 Cash
f
lows are in
f
lows and out
f
lows o
f
cash and cash equivalents.
5.4 Operating activities are the principal revenue-producing activities
of the enterprise and other activities that are not investing o
r
financing activities.
5.5 Investing activities are the acquisition and disposal of long-term
assets and other investments not included in cash equivalents.
5.6
F
inancin
g
activities are activities tha
t
resul
t
nchan
g
es
nthe siz
e
and composition of the owners’ capital (including preference shar
e
capital in the case of a company) and borrowings of the enterprise.
Page 4/24
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