Introduction Many people also struggle with preparing IFRS statement cash flows because… It’s the only statement prepared on a cash basis, not on an accrual basis; Accounting records must be adjusted to exclude non-cash items which might be quite demanding.
1. Gather Basic Documents and Data In order to start, you shall obtain at least the following documents: Balance sheet (statement of financial position) as at the end of the current reporting period (closing B/S) and as at the beginning of the current reporting period (opening B/S) Statement of changes in equity for the current reporting period . Information about material transactions in your company during the current reporting period.
2. Calculate Changes in the Balance Sheet Take the closing and opening B/S and make a simple table with 3 columns: the first column – title of caption in B/S (for example, tangible non-current assets). The second column—balance of this caption from the closing B/S and the third column—balance of this caption from the opening B/S.
Put Each Change in B/S 3. You should have a blank statement of cash flows ready for further work. Ideally, you can use the statement of cash flows from previous period and take only titles of individual captions. You should look to all changes in your balance sheet and enter each number to the blank form of cash flow statement. For example: You have calculated that change in your property, plant and equipment is -10 000, so you enter this figure in the investing part of your blank cash flows under the title “purchases of PPE”
4. Make Adjustments for Non-cash Items Typical non-cash adjustments are usually as follows: DepreciationExpense Change in Revaluation Reserves Foreign Exchange Differences at the end of period Interest Income and Expense Revaluation of certain assets and liabilities at the end of period Income Tax Expense Expense for Recognition
5. Make Adjustments for Non-cash Items You find out that your company entered into new material lease contract. And there is a non-cash adjustment hidden for sure, because on one side, increase in PPE was recorded that was not purchased for cash. On the other hand, increase in loans or lease liabilities was recorded, but the company have not received any cash. So you shall adjust for it
6. Prepare Movements in Material Balance Sheet You have made all material non-cash adjustments in your cash flows without omitting something important. Well, if you are sure that you have all available information from various departments in your company to include, than fine. But if you are unsure about it, then rather do this step. It’s very easy. Just take the biggest or material items in your balance sheet and reconcile their movements between opening and closing balance. Check whether each movement is taken into account for in your cash flow statement so far.
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