Page 88 - Ebook Financial Accounting 3

CHAPTER 5.0

STATEMENT OF CASH FLOWS: MFRS 107 (MFRS 17-

EFFECTIVE 1.1.2020)

LEARNING OBJECTIVE:

At the end of this chapter, students should be able to:

• Explain the nature of cash and cash equivalent
• Illustrate the preparation and presentation of the Statement of Cash Flow

Introduction

MFRS 107 “Statement of Cash Flows” defines cash equivalents as “short-term, highly

liquid investments that are readily convertible to known amounts of cash and which are subject
to an insignificant risk of changes in value”. A cash flow statement is a financial statement that

provides aggregate data regarding all cash inflows a company receives from its ongoing
operations and external investment sources. It also includes all cash outflows that pay for

business activities and investments during a given period. It is one of the financial statements

which the Financial Reporting Standard requires a business entity to prepare in order to report
on its cash generation and absorption for a period.

Importance of statement of cash flows

The objective of the cash flow statement is to analyze the individual cash transactions by

classifying them according to basic cash activities such as borrowing, earning etc, and then to
derive at the net effect of each activity so that it provides useful information to enable:

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