Ans: IAS 7 Statement of Cash Flows requires an entity to present a statement of cash flows as an integral part of its primary financial statements. Cash flows are classified and presented into operating activities (either using the 'direct' or 'indirect' method), investing activities or financing activities, with the latter two categories generally presented on a gross basis.

The statement of cash flows analyses changes in cash and cash equivalents during a period

Key principles specified by IAS 7 for the preparation of a statement of cash flows are as follows:

• operating activities are the main revenue-producing activities of the entity that are not investing or financing activities, so operating cash flows include cash received from customers and cash paid to suppliers and employees.
• investing activities are the acquisition and disposal of long-term assets and other investments that are not considered to be cash equivalents.
• Financing activities are activities that alter the equity capital and borrowing structure of the entity.
• Interest and dividends received and paid may be classified as operating, investing, or financing cash flows, provided that they are classified consistently from period to period

The direct method shows each major class of gross cash receipts and gross cash payments. It does not take into account accrual basis.

The indirect method adjusts accrual basis net profit or loss for the effects of non-cash transactions. Adjustment is made for non cash item and various adjustment.

Entities shall provide disclosures that enable users of financial statements to evaluate changes in cash & Cash equivalents arising from each activity.