17
its
obligations
to
shareholders
(dividends),
creditors (interest)
and
government
(taxes
and
charges),
evaluate
company’s
potential
ability
to
generate
positive
net cash
flow, discover of
what
is
needed by the entity and
find out
the reason
of the difference occur between the net profit after tax and associated cash
inflow and outflow. On the other hand, statement of cash flow is also prepared
to
help
internal
users (managers) in
evaluating
of
how
the
management
generates and uses cash, and provide useful information to help managers in
planning and controlling operations in the entity
On the other hand, cash means more than just the cash on hand or cash at bank.
Here,
the
cash
being
included
in
the statement
of
cash
flow
includes
cash
equivalent.
Based
on
paragraph
6
of IAS
7
(International
Financial
Reporting
Standard,
2005),
cash
and
cash
equivalents
are
defined
as
“Cash
comprises
cash on hand and demand deposits. Cash equivalents are short term, highly
liquid investments that are readily convertible to known amounts of cash and
which are subject
to a significant
risk
in changes
in
value”. Additionally, based
on
paragraph
7
of
IAS
7
(International
Financial
Reporting
Standard
2005),
cash equivalent should only be
used to meet short
term-
commitment, and
not
for
investment
or
other
purpose.
As
what
have
been
stated
in
the
definition,
cash
equivalent
investment
should
be
easily
convertible
to cash
and
have
an
insignificant risk of changing value. On the other hand, cash is a cash
equivalent
only
if
it
has
a
short
maturity
that
is
three
months
or
less.
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