CASH FLOW STATEMENT IAS 7 and GAS 4 require all enterprises to publish cash flow statement showing how

cash inflows have been generated and how they have been spent. The objective of IAS 7 and GAS 4 is to ensure that enterprises provide information about the historical changes in cash and cash equivalents by means of cash flow statement which classifies cash flows during the period between those arising from Operating, Investing and Financing activities. DEFINITIONS: CASH: It comprises of cash on hand and demand deposits. CASH EQUIVALENTS: They are short term, highly liquid investments that are convertible to known amounts of cash and which are subject to insignificant risk of changes in value. Cash equivalents normally have short term maturity say three months or less from the date of acquisition. INVESTING ACTIVITIES: They are the acquisition and disposal of long-term assets and other investments not included in the cash equivalents. It consists of all cash receipts and payment in the receipt and acquisition of fixed assets, investment and interests received from loans as well as dividend received on investment. FINANCING ACTIVITIES: They are the activities that result in changes in the size and composition of equity capital and borrowing of an enterprise. Bank borrowings are generally considered to be financing activity. However, if bank overdrafts are payable on demand then it should form an integral part of an enterprises cash management. In this case the bank overdraft are included as a component of cash and cash equivalent. It includes: Cash paid: 1. amount borrowed 2. on to redeem a company shares and 3. cash paid on finance lease. Cash received: 1. issue of debenture, other long term loan, overdraft not included in cash and cash equivalent. 2. shares and other equity investments ADVANTAGE OF CASH FLOW Cash flow cannot easily be manipulated and it is not affected by judgements. Cash flow in conjunction with the balance sheet provides information on liquidity, liquidity, viability and adaptability It gives an indication of the relationship between profitability and cash generating ability and thus the quality of profit earned. LIMITATIONS OF CASH FLOW

It is based on historical information and therefore do not provide complete information for assessing future cash flows. There is some scope of manipulation of cash flow. For example a business may delay paying suppliers until after the year end or it may structure transactions so as to show a favourable cash balance.

FORMAT: CASH FLOW STATEMENT FOR THE YEAR ENDED 31ST DECEMBER, 2008 GH GH Operating activities: Net profit before interests, taxation and extra ordinary items 100 Add depreciation 200 300 Add: Decrease in trade receivables (subtract increases) 100 Increase in trade payables (subtract decreases) 200 Decrease in stocks/inventories (subtract increases) 300 Cash generated from trading activities before interest and tax 900 Less: Interest paid Tax paid Cash generated from trading activities after interest and tax 100 200 600 100 (200) 300 200 (100) 300 (400) (100) (300) 500

Investing Activities: Add cash from sale of an investing Activity (e.g. fixed Asset) Subtract cash paid on the purchase of an investing an investing activity Add Dividend / Interest received Net Cash flow from investing Activity Financing Activities: Less Dividend paid Add Proceeds from sale of Shares/Debenture Less Payment of finance lease liability/ repayment of loan Cash paid on redemption of shares Net Cash flow from Financing Activity Net increase in Cash and Cash equivalence