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1. The cash flow statement is a required important financial statement, and it explains changes in cash and cash equivalents during a period.
2. Cash equivalents are short-term, highly liquid investments subject to insignificant risk of changes in value.
3. Cash flow statement should classify changes in cash and cash equivalents into operating, investing, and financial activities.
May be presented using either direct or indirect methods. Direct method shows receipts from customers and payments to suppliers, employees, government (taxes), etc. The indirect method begins with accrual basis net profit or loss and adjusts for major non-cash items.
Disclose separately cash receipts and payments arising from acquisition or sale of property, plant, and equipment; acquisition or sale of equity or debt instruments of other enterprises (including acquisition or sale of subsidiaries); and advances and loans made to, or repayments from, third parties.
Disclose separately cash receipts and payments arising from an issue of a share or other equity securities; payments made to redeem such securities; proceeds arising from issuing debentures, loans, notes; and repayments of such securities.
Cash flows from taxes should be disclosed separately within operating activities, unless they can be correctly identified with one of the other two headings.
Investing and financing activities that do not give rise to cash flows (a nonmonetary transaction such as an acquisition of property by issuing debt) should be excluded from the cash flow statement but disclosed separately.Posted