International Accounting Standard 7 Statement of Cash Flows (IAS 7) is set out in paragraphs 1–61. All the paragraphs have equal authority but retain the IASC format of the Standard when it was adopted by the IASB. IAS 7 should be read in the context of its objective and the Basis for Conclusions, the Preface to IFRS Standards and the Conceptual Framework for Financial Reporting . IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors provides a basis for selecting and applying accounting policies in the absence of explicit guidance. [ Refer: IAS 8 paragraphs 10–12]
Information about the cash flows of an entity is useful in providing users [ Refer: Conceptual Framework paragraphs 1.2-1.10 and 2.36] of financial statements with a basis to assess the ability of the entity to generate cash and cash equivalents and the needs of the entity to utilise those cash flows. The economic decisions that are taken by users require an evaluation of the ability of an entity to generate cash and cash equivalents and the timing and certainty of their generation.
The objective of this Standard is to require the provision of information about the historical changes in cash and cash equivalents of an entity by means of a statement of cash flows which classifies cash flows during the period from operating , investing and financing activities .
An entity shall prepare a statement of cash flows in accordance with the requirements of this Standard and shall present it as an integral part of its financial statements for each period for which financial statements are presented.
This Standard supersedes IAS 7 Statement of Changes in Financial Position , approved in July 1977.
Users of an entity’s financial statements are interested in how the entity generates and uses cash and cash equivalents . This is the case regardless of the nature of the entity’s activities and irrespective of whether cash can be viewed as the product of the entity, as may be the case with a financial institution. Entities need cash for essentially the same reasons however different their principal revenue‑producing activities might be. They need cash to conduct their operations, to pay their obligations, and to provide returns to their investors. Accordingly, this Standard requires all entities to present a statement of cash flows.
A statement of cash flows, when used in conjunction with the rest of the financial statements, provides information that enables users to evaluate the changes in net assets of an entity, its financial structure (including its liquidity and solvency) and its ability to affect the amounts and timing of cash flows in order to adapt to changing circumstances and opportunities. Cash flow information is useful in assessing the ability of the entity to generate cash and cash equivalents and enables users to develop models to assess and compare the present value of the future cash flows of different entities. It also enhances the comparability [ Refer: Conceptual Framework paragraphs 2.24-2.29] of the reporting of operating performance by different entities because it eliminates the effects of using different accounting treatments for the same transactions and events.
Historical cash flow information is often used as an indicator of the amount, timing and certainty of future cash flows . It is also useful in checking the accuracy of past assessments of future cash flows and in examining the relationship between profitability and net cash flow and the impact of changing prices.
The following terms are used in this Standard with the meanings specified:
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 an insignificant risk of changes in value.
Cash flows are inflows and outflows of cash and cash equivalents .
Operating activities are the principal revenue‑producing activities of the entity and other activities that are not investing or financing activities .
Investing activities are the acquisition and disposal of long‑term assets and other investments not included in cash equivalents .
Financing activities are activities that result in changes in the size and composition of the contributed equity and borrowings of the entity.
Cash equivalents are held for the purpose of meeting short‑term cash commitments rather than for investment or other purposes. For an investment to qualify as a cash equivalent it must be readily convertible to a known amount of cash and be subject to an insignificant risk of changes in value. Therefore, an investment normally qualifies as a cash equivalent only when it has a short maturity of, say, three months or less from the date of acquisition. E1 Equity investments are excluded from cash equivalents unless they are, in substance, cash equivalents, for example in the case of preferred shares acquired within a short period of their maturity and with a specified redemption date. E2
[IFRIC® Update, May 2013, Agenda Decision, ‘ IAS 7 Statement of Cash Flows —identification of cash equivalents’
The Interpretations Committee received a request about the basis of classification of financial assets as cash equivalents in accordance with IAS 7. More specifically, the submitter thinks that the classification of investments as cash equivalents on the basis of the remaining period to maturity as at the balance sheet date would lead to a more consistent classification rather than the current focus on the investment’s maturity from its acquisition date.
The Interpretations Committee noted that, on the basis of paragraph 7 of IAS 7, financial assets held as cash equivalents are held for the purpose of meeting short-term cash commitments rather than for investment or other purposes. This paragraph further states that an investment is classified as a cash equivalent, only when it has a short maturity from the date of acquisition.
The Interpretations Committee observed that paragraph 7 of IAS 7 promotes consistency between entities in the classification of cash equivalents and did not think that the requirements of paragraph 7 of IAS 7 were unclear.
On the basis of the above, the Interpretations Committee determined that in the light of the existing IFRS guidance, an interpretation or an amendment to Standards was not necessary and it did not expect significant diversity in practice to develop regarding their application. Consequently, the Interpretations Committee decided not to add this issue to its agenda.]
[IFRIC® Update, July 2009, Agenda Decision, ‘ IAS 7 Statement of Cash Flows —Determination of cash equivalents’
The IFRIC received a request for guidance on whether investments in shares or units of money market funds that are redeemable at any time can be classified as cash equivalents.
The IFRIC noted that paragraph 7 of IAS 7 states that the purpose of holding cash equivalents is to meet short-term cash commitments. In this context, the critical criteria in the definition of cash equivalents set out in paragraph 6 of IAS 7 are the requirements that cash equivalents be ‘convertible to known amounts of cash’ and ‘subject to insignificant risk of changes in value’. The IFRIC noted that the first criterion means that the amount of cash that will be received must be known at the time of the initial investment, ie the units cannot be considered cash equivalents simply because they can be converted to cash at any time at the then market price in an active market. The IFRIC also noted that an entity would have to satisfy itself that any investment was subject to an insignificant risk of changes in value for it to be classified as a cash equivalent.
Given the guidance in IAS 7, the IFRIC did not expect significant diversity in practice because the purpose of holding the instrument and the satisfaction of the criteria should both be clear from its terms and conditions. Accordingly, the IFRIC decided not to add this issue to its agenda.]
Bank borrowings are generally considered to be financing activities . However, in some countries, bank overdrafts which are repayable on demand form an integral part of an entity's cash management. In these circumstances, bank overdrafts are included as a component of cash and cash equivalents . A characteristic of such banking arrangements is that the bank balance often fluctuates from being positive to overdrawn. E3
[IFRIC® Update, June 2018, Agenda Decision, ‘Classification of short-term loans and credit facilities ( IAS 7 Statement of Cash Flows )’
The Committee received a request asking about the types of borrowings an entity includes in its statement of cash flows as a component of cash and cash equivalents. In the fact pattern described in the request:
an entity has short-term loans and credit facilities (short-term arrangements) that have a short contractual notice period (eg 14 days);
the entity says it uses the short-term arrangements for cash management; and
the balance of the short-term arrangements does not often fluctuate from being negative to positive.
The Committee observed that:
applying paragraph 8 of IAS 7, an entity generally considers bank borrowings to be financing activities. An entity, however, includes a bank borrowing as a component of cash and cash equivalents only in the particular circumstances described in paragraph 8 of IAS 7—ie the banking arrangement is a bank overdraft that (i) is repayable on demand, and (ii) forms an integral part of the entity’s cash management.
cash management includes managing cash and cash equivalents for the purpose of meeting short-term cash commitments rather than for investment or other purposes (paragraphs 7 and 9 of IAS 7). Assessing whether a banking arrangement is an integral part of an entity’s cash management is a matter of facts and circumstances.
if the balance of a banking arrangement does not often fluctuate from being negative to positive, then this indicates that the arrangement does not form an integral part of the entity’s cash management and, instead, represents a form of financing.
In the fact pattern described in the request, the Committee concluded that the entity does not include the short-term arrangements as components of cash and cash equivalents. This is because these short-term arrangements are not repayable on demand. Additionally, the fact that the balance does not often fluctuate from being negative to positive indicates that the short-term arrangements are a form of financing rather than an integral part of the entity’s cash management.
The Committee also noted that paragraphs 45 and 46 of IAS 7 require an entity to (a) disclose the components of cash and cash equivalents and present a reconciliation of the amounts in its statement of cash flows with the equivalent items reported in its statement of financial position; and (b) disclose the policy which it adopts in determining the composition of cash and cash equivalents.
The Committee concluded that the principles and requirements in IFRS Standards provide an adequate basis for an entity to assess whether to include in its statement of cash flows the short-term arrangements described in the request as components of cash and cash equivalents. Consequently, the Committee decided not to add this matter to its standard-setting agenda.]
Cash flows exclude movements between items that constitute cash or cash equivalents because these components are part of the cash management of an entity rather than part of its operating , investing and financing activities . Cash management includes the investment of excess cash in cash equivalents.
[IFRIC® Update, August 2005, Agenda Decision, ‘ IAS 7 Value added tax’
The IFRIC considered whether it should add to its agenda a project to clarify whether cash flows reported in accordance with IAS 7 Cash Flow Statements should be measured as inclusive or exclusive of value added tax (VAT). There was evidence that different practices may emerge, the differences being most marked for entities that adopt the direct method of reporting cash flows.
IAS 7 does not explicitly address the treatment of VAT. The IFRIC noted that it would be appropriate in complying with IAS 1 Presentation of Financial Statements for entities to disclose whether they present their gross cash flows as inclusive or exclusive of VAT.
The IFRIC decided that it should not develop an Interpretation on this topic, because while different practices might emerge, they were not expected to be widespread. The IFRIC will recommend to the IASB that the treatment of VAT should be considered as part of the review of IAS 7 being carried out within the project on performance reporting.]
[IFRIC® Update, December 2020, Agenda Decision, ‘Supply Chain Financing Arrangements—Reverse Factoring’
The Committee received a request about reverse factoring arrangements. Specifically, the request asked:
how an entity presents liabilities to pay for goods or services received when the related invoices are part of a reverse factoring arrangement; and
what information about reverse factoring arrangements an entity is required to disclose in its financial statements.
In a reverse factoring arrangement, a financial institution agrees to pay amounts an entity owes to the entity’s suppliers and the entity agrees to pay the financial institution at the same date as, or a date later than, suppliers are paid.
Presentation in the statement of cash flows
operating activities as ‘the principal revenue-producing activities of the entity and other activities that are not investing or financing activities’; and
financing activities as ‘activities that result in changes in the size and composition of the contributed equity and borrowings of the entity’.
An entity that has entered into a reverse factoring arrangement determines how to classify cash flows under the arrangement, typically as cash flows from operating activities or cash flows from financing activities. The Committee observed that an entity’s assessment of the nature of the liabilities that are part of the arrangement may help in determining whether the related cash flows arise from operating or financing activities. For example, if the entity considers the related liability to be a trade or other payable that is part of the working capital used in the entity’s principal revenue-producing activities, the entity presents cash outflows to settle the liability as arising from operating activities in its statement of cash flows. In contrast, if the entity considers that the related liability is not a trade or other payable because the liability represents borrowings of the entity, the entity presents cash outflows to settle the liability as arising from financing activities in its statement of cash flows.
Investing and financing transactions that do not require the use of cash or cash equivalents are excluded from an entity’s statement of cash flows (paragraph 43 of IAS 7). Consequently, if a cash inflow and cash outflow occur for an entity when an invoice is factored as part of a reverse factoring arrangement, the entity presents those cash flows in its statement of cash flows. If no cash inflow or cash outflow occurs for an entity in a financing transaction, the entity discloses the transaction elsewhere in the financial statements in a way that provides all the relevant information about the financing activity (paragraph 43 of IAS 7).
Notes to the financial statements
Paragraph 44A of IAS 7 requires an entity to provide ‘disclosures that enable users of financial statements to evaluate changes in liabilities arising from financing activities, including both changes arising from cash flows and non-cash changes’. The Committee noted that such disclosure is required for liabilities that are part of a reverse factoring arrangement if the cash flows for those liabilities were, or future cash flows will be, classified as cash flows from financing activities.
The Committee concluded that the principles and requirements in IFRS Standards provide an adequate basis for an entity to determine the presentation of liabilities that are part of reverse factoring arrangements, the presentation of the related cash flows, and the information to disclose in the notes about, for example, liquidity risks that arise in such arrangements. Consequently, the Committee decided not to add a standard-setting project on these matters to the work plan.]
[IFRIC® Update, March 2008, Agenda Decision, ‘ IAS 7 Statement of Cash Flows —Classification of expenditures’
The IFRIC received a request for guidance on the treatment of some types of expenditure in the statement of cash flows. In practice some entities classify expenditures that are not recognised as assets under IFRSs as cash flows from operating activities while others classify them as part of investing activities. Examples of such expenditures are those for exploration and evaluation activities (which can be recognised, according to the applicable standard, as an asset or an expense). Advertising and promotional activities, staff training and research and development could also raise the same issue.
The IFRIC concluded that the issue could be best resolved by referring it to the Board with a recommendation that IAS 7 should be amended to make explicit that only an expenditure that results in a recognised asset can be classified as a cash flow from investing activity. The IFRIC therefore decided not to add the issue to its agenda.]
The statement of cash flows shall report cash flows during the period classified by operating , investing and financing activities .
| Cash flows from (used in) financing activities Disclosure | MonetaryDuration, Debit | IAS 7.50 d Disclosure | 510000, 520000, 825900, 871100 |
| Cash flows from (used in) investing activities Disclosure | MonetaryDuration, Debit | IAS 7.50 d Disclosure | 510000, 520000, 825900, 871100 |
| Cash flows from (used in) operating activities Disclosure | MonetaryDuration | IAS 7.50 d Disclosure | 510000, 520000, 825900, 871100 |
An entity presents its cash flows from operating , investing and financing activities in a manner which is most appropriate to its business. Classification by activity provides information that allows users [ Refer: Conceptual Framework paragraphs 1.2-1.10 and 2.36] to assess the impact of those activities on the financial position of the entity and the amount of its cash and cash equivalents . This information may also be used to evaluate the relationships among those activities.
A single transaction may include cash flows that are classified differently. For example, when the cash repayment of a loan includes both interest and capital, the interest element may be classified as an operating activity and the capital element is classified as a financing activity .
The amount of cash flows arising from operating activities is a key indicator of the extent to which the operations of the entity have generated sufficient cash flows to repay loans, maintain the operating capability of the entity, pay dividends and make new investments without recourse to external sources of financing. Information about the specific components of historical operating cash flows is useful, in conjunction with other information, in forecasting future operating cash flows.
Cash flows from operating activities are primarily derived from the principal revenue‑producing activities of the entity. Therefore, they generally result from the transactions and other events that enter into the determination of profit or loss. Examples of cash flows from operating activities are:
cash receipts from the sale of goods and the rendering of services;
| Receipts from sales of goods and rendering of services Example | MonetaryDuration, Debit | 510000 |
cash receipts from royalties, fees, commissions and other revenue;
| Receipts from royalties, fees, commissions and other revenue Example | MonetaryDuration, Debit | 510000 |
cash payments to suppliers for goods and services;
| Payments to suppliers for goods and services Example | MonetaryDuration, Credit | 510000 |
cash payments to and on behalf of employees;
| Payments to and on behalf of employees Example | MonetaryDuration, Credit | 510000 |
cash payments or refunds of income taxes unless they can be specifically identified with financing and investing activities ; and
| Income taxes paid (refund), classified as financing activities Example | MonetaryDuration, Credit | IAS 7.35 Disclosure | 510000, 520000, 851100 |
| Income taxes paid (refund), classified as investing activities Example | MonetaryDuration, Credit | IAS 7.35 Disclosure | 510000, 520000, 851100 |
| Income taxes paid (refund), classified as operating activities Example | MonetaryDuration, Credit | IAS 7.35 Disclosure | 510000, 520000, 851100 |
cash receipts and payments from contracts held for dealing or trading purposes.
| Payments from contracts held for dealing or trading purpose Example | MonetaryDuration, Credit | 510000 |
| Receipts from contracts held for dealing or trading purposes Example | MonetaryDuration, Debit | 510000 |
Some transactions, such as the sale of an item of plant, may give rise to a gain or loss that is included in recognised profit or loss. The cash flows relating to such transactions are cash flows from investing activities. However, cash payments to manufacture or acquire assets held for rental to others and subsequently held for sale as described in paragraph 68A of IAS 16 Property, Plant and Equipment are cash flows from operating activities . The cash receipts from rents and subsequent sales of such assets are also cash flows from operating activities.
| Other cash payments from operating activities Example | MonetaryDuration, Credit | 510000 |
| Other cash receipts from operating activities Example | MonetaryDuration, Debit | 510000 |
| Payments to manufacture or acquire assets held for rental to others and subsequently held for sale Example | MonetaryDuration, Credit | 510000 |
| Receipts from rents and subsequent sales of assets held for rental to others and subsequently held for sale Example | MonetaryDuration, Debit | 510000 |
| Adjustments for losses (gains) on disposal of non-current assets Common practice | MonetaryDuration, Debit | 520000 |
| Payments for exploration and evaluation expenses Common practice | MonetaryDuration, Credit | 800300 |
| Payments to suppliers for goods and services and to and on behalf of employees Common practice | MonetaryDuration, Credit | 800300 |
| Other inflows (outflows) of cash, classified as operating activities Disclosure | MonetaryDuration, Debit | 510000, 520000 |
An entity may hold securities and loans for dealing or trading purposes, in which case they are similar to inventory acquired specifically for resale. Therefore, cash flows arising from the purchase and sale of dealing or trading securities are classified as operating activities . Similarly, cash advances and loans made by financial institutions [ Refer: Illustrative Examples, example B] are usually classified as operating activities since they relate to the main revenue‑producing activity of that entity.
The separate disclosure of cash flows arising from investing activities is important because the cash flows represent the extent to which expenditures have been made for resources intended to generate future income and cash flows. Only expenditures that result in a recognised asset in the statement of financial position are eligible for classification as investing activities. [ Refer: Basis for Conclusions paragraphs BC3–BC8 and IFRS 6 Basis for Conclusions paragraphs BC23A and BC23B] Examples of cash flows arising from investing activities are:
cash payments to acquire property, plant and equipment, intangibles and other long‑term assets. These payments include those relating to capitalised development costs [ Refer: IAS 38 paragraphs 57–67] and self‑constructed property, plant and equipment; [ Refer: IAS 16 paragraph 22]
| Purchase of intangible assets, classified as investing activities Example | MonetaryDuration, Credit | 510000, 520000 |
| Purchase of other long-term assets, classified as investing activities Example | MonetaryDuration, Credit | 510000, 520000 |
| Purchase of property, plant and equipment, classified as investing activities Example | MonetaryDuration, Credit | 510000, 520000 |
cash receipts from sales of property, plant and equipment, intangibles and other long‑term assets;
| Proceeds from sales of intangible assets, classified as investing activities Example | MonetaryDuration, Debit | 510000, 520000 |
| Proceeds from sales of other long-term assets, classified as investing activities Example | MonetaryDuration, Debit | 510000, 520000 |
| Proceeds from sales of property, plant and equipment, classified as investing activities Example | MonetaryDuration, Debit | 510000, 520000 |
cash payments to acquire equity or debt instruments of other entities and interests in joint ventures (other than payments for those instruments considered to be cash equivalents or those held for dealing or trading purposes);
| Other cash payments to acquire equity or debt instruments of other entities, classified as investing activities Example | MonetaryDuration, Credit | 510000, 520000 |
| Other cash payments to acquire interests in joint ventures, classified as investing activities Example | MonetaryDuration, Credit | 510000, 520000 |
cash receipts from sales of equity or debt instruments of other entities and interests in joint ventures (other than receipts for those instruments considered to be cash equivalents and those held for dealing or trading purposes);
| Other cash receipts from sales of equity or debt instruments of other entities, classified as investing activities Example | MonetaryDuration, Debit | 510000, 520000 |
| Other cash receipts from sales of interests in joint ventures, classified as investing activities Example | MonetaryDuration, Debit | 510000, 520000 |
cash advances and loans made to other parties (other than advances and loans made by a financial institution [ Refer: Illustrative Examples, example B] );
| Cash advances and loans made to other parties, classified as investing activities Example | MonetaryDuration, Credit | 510000, 520000 |
cash receipts from the repayment of advances and loans made to other parties (other than advances and loans of a financial institution);
| Cash receipts from repayment of advances and loans made to other parties, classified as investing activities Example | MonetaryDuration, Debit | 510000, 520000 |
cash payments for futures contracts, forward contracts, option contracts and swap contracts except when the contracts are held for dealing or trading purposes, or the payments are classified as financing activities ; and
| Cash payments for futures contracts, forward contracts, option contracts and swap contracts, classified as investing activities Example | MonetaryDuration, Credit | 510000, 520000 |
cash receipts from futures contracts, forward contracts, option contracts and swap contracts except when the contracts are held for dealing or trading purposes, or the receipts are classified as financing activities.
| Cash receipts from futures contracts, forward contracts, option contracts and swap contracts, classified as investing activities Example | MonetaryDuration, Debit | 510000, 520000 |
When a contract is accounted for as a hedge of an identifiable position the cash flows of the contract are classified in the same manner as the cash flows of the position being hedged.
| Cash advances and loans made to related parties Common practice | MonetaryDuration, Credit | 800300 |
| Cash flows from (used in) decrease (increase) in restricted cash and cash equivalents Common practice | MonetaryDuration, Debit | 800300 |
| Cash flows from (used in) decrease (increase) in short-term deposits and investments Common practice | MonetaryDuration, Debit | 800300 |
| Cash flows used in exploration and development activities Common practice | MonetaryDuration, Credit | 800300 |
| Cash receipts from repayment of advances and loans made to related parties Common practice | MonetaryDuration, Debit | 800300 |
| Dividends received from associates, classified as investing activities Common practice | MonetaryDuration, Debit | 800300 |
| Dividends received from investments accounted for using equity method, classified as investing activities Common practice | MonetaryDuration, Debit | 800300 |
| Dividends received from joint ventures, classified as investing activities Common practice | MonetaryDuration, Debit | 800300 |
| Inflows of cash from investing activities Common practice | MonetaryDuration, Debit | 800300 |
| Outflows of cash from investing activities Common practice | MonetaryDuration, Credit | 800300 |
| Payments for development project expenditure Common practice | MonetaryDuration, Credit | 800300 |
| Proceeds from disposal of exploration and evaluation assets Common practice | MonetaryDuration, Debit | 800300 |
| Proceeds from disposal of mining assets Common practice | MonetaryDuration, Debit | 800300 |
| Proceeds from disposal of non-current assets or disposal groups classified as held for sale and discontinued operations Common practice | MonetaryDuration, Debit | 800300 |
| Proceeds from disposal of oil and gas assets Common practice | MonetaryDuration, Debit | 800300 |
| Proceeds from disposals of property, plant and equipment, intangible assets other than goodwill, investment property and other non-current assets Common practice | MonetaryDuration, Debit | 800300 |
| Proceeds from sales of biological assets Common practice | MonetaryDuration, Debit | 800300 |
| Proceeds from sales of interests in associates Common practice | MonetaryDuration, Debit | 800300 |
| Proceeds from sales of investment property Common practice | MonetaryDuration, Debit | 800300 |
| Proceeds from sales of investments accounted for using equity method Common practice | MonetaryDuration, Debit | 800300 |
| Proceeds from sales of investments other than investments accounted for using equity method Common practice | MonetaryDuration, Debit | 800300 |
| Proceeds from sales or maturity of financial instruments, classified as investing activities Common practice | MonetaryDuration, Debit | 800300 |
| Purchase of biological assets Common practice | MonetaryDuration, Credit | 800300 |
| Purchase of exploration and evaluation assets Common practice | MonetaryDuration, Credit | 800300 |
| Purchase of financial instruments, classified as investing activities Common practice | MonetaryDuration, Credit | 800300 |
| Purchase of interests in associates Common practice | MonetaryDuration, Credit | 800300 |
| Purchase of interests in investments accounted for using equity method Common practice | MonetaryDuration, Credit | 800300 |
| Purchase of investment property Common practice | MonetaryDuration, Credit | 800300 |
| Purchase of investments other than investments accounted for using equity method Common practice | MonetaryDuration, Credit | 800300 |
| Purchase of mining assets Common practice | MonetaryDuration, Credit | 800300 |
| Purchase of oil and gas assets Common practice | MonetaryDuration, Credit | 800300 |
| Purchase of property, plant and equipment, intangible assets other than goodwill, investment property and other non-current assets Common practice | MonetaryDuration, Credit | 800300 |