What is the primary purpose of the statement of cash flows under IAS 7?

The primary purpose of the statement of cash flows under IAS 7 is to provide information about the cash inflows and outflows of an entity. This financial statement is essential for assessing the liquidity, solvency, and financial flexibility of a business. Unlike the income statement, which focuses on profitability by matching revenues and expenses, the statement of cash flows analyzes the actual cash movements during a specific period.

By categorizing cash flows into operating, investing, and financing activities, it offers insights into the cash generated from core business operations, how cash is spent on investments, and how cash is raised or paid back to external parties. This is particularly useful for investors, creditors, and other stakeholders who need to understand the entity’s ability to generate cash and meet cash obligations, rather than merely evaluating profitability or accounting earnings.

The other options suggest purposes that do not align with the specific function of the statement of cash flows. For instance, summarizing all transactions completed in a given period pertains more to overall financial reporting rather than focusing uniquely on cash transactions. Showing the profitability of the entity aligns more closely with the income statement, while calculating and reporting taxes owed is usually addressed in the tax expense line of the income statement and through tax-related disclosures, rather than being a