There are two methods for preparing cash flow statements,
- Direct method.
- Indirect method.
A cash flow statement should list its cash flows for the period classified under the following standard headings:
- Operating activities
- Returns on investments and servicing of finance
- Capital expenditure and financial investment
- Acquisitions and disposals
- Equity dividends paid
- Management of liquid resources
The last two headings can be shown in a single section provided a subtotal is given for each heading.
Individual categories of inflows and outflows under the standard headings should be disclosed separately either in the cash statements or in a note to it unless they are allowed to be shown net. Cash inflows and outflows may be shown net if they relate to the management of liquid resources or financing and the inflows and outflows:
- Relate in substance to a single financing transaction
- Or are due to short maturities and high turnover occurring from rollover or reissue, for example relating to operating activities.
The requirement to show cash inflows and outflows separately does not apply to cash flows relating to operating activities.
Each cash flow should be classified according to the substance of the transaction giving rise to it.