IAS 7 Statement of Cash Flows – Summary, Key Points & MCQs

Status & recent changes

Amendments effective from 1 January 2024 added disclosures about supplier finance arrangements.
IFRS 18 (effective 1 January 2027) makes consequential amendments: operating profit becomes the starting point for the indirect method, and for most entities the current choices on where to classify interest and dividends are removed. Check the amended text when you move to IFRS 18-based syllabuses.

Requires a statement showing how cash and cash equivalents changed during the period, classified into operating, investing and financing activities.

All entities presenting financial statements under IFRS must include a statement of cash flows.

Cash: Cash on hand and demand deposits.
Cash equivalents: Short-term, highly liquid investments that are readily convertible to known amounts of cash and carry an insignificant risk of changes in value; typically maturing within about three months of acquisition.
Operating activities: The main revenue-producing activities and other activities that are not investing or financing.
Investing activities: Acquiring and disposing of long-term assets and other investments not included in cash equivalents.
Financing activities: Activities that change the size and composition of contributed equity and borrowings.

Operating cash flows may use the direct method (gross receipts and payments, encouraged) or the indirect method (profit adjusted for non-cash items and working capital changes).
Investing and financing cash flows are shown gross by major class; netting is allowed only in limited cases (e.g. high-turnover, short-maturity items).
Bank overdrafts repayable on demand that form part of cash management may be included in cash and cash equivalents.
Under IAS 7 as currently written, interest and dividends paid or received are classified consistently as operating, investing or financing (choices exist for most entities). Income tax cash flows are operating unless specifically identified with investing or financing.
Non-cash transactions (e.g. acquiring an asset through a lease, converting debt to equity) are excluded from the statement and disclosed elsewhere.
Cash flows on obtaining or losing control of subsidiaries are investing activities, shown net of cash acquired or disposed of.

Components of cash and cash equivalents and a reconciliation to the statement of financial position.
Reconciliation of changes in liabilities arising from financing activities (cash and non-cash changes).
Significant cash balances not available for use by the group.
Information about supplier finance arrangements (terms, carrying amounts, payment due date ranges).

Depreciation, impairment and losses on disposal are added back in the indirect method; gains on disposal are deducted, and the full sale proceeds go to investing.
An increase in receivables or inventory is deducted; an increase in payables is added.
Acquiring a right-of-use asset under a lease is non-cash; the later principal repayments are financing cash flows.
Equity-accounted profits are non-cash; dividends received from associates are the cash flow.

Scenario. Profit before tax $500k; depreciation $80k; receivables up $30k; inventory down $20k; trade payables up $15k; tax paid $100k.

Start with profit before tax: 500.
Add back depreciation: +80 → 580.
Receivables increased: −30 → 550. Inventory decreased: +20 → 570. Payables increased: +15 → 585.
Cash generated from operations = 585; less tax paid 100.

Answer: Net cash from operating activities = $485k.

Test your understanding of IAS 7 with free chapter-wise MCQs and explanations in these question banks.

ICAI CA Intermediate examines Indian Accounting Standards, which are based on but can differ from IFRS. Check your syllabus.