Ind AS 7: Statement of Cash Flows — Detailed Guide

Standard orientation

What Ind AS 7 is designed to achieve

Require information about historical changes in cash and cash equivalents through a statement that classifies cash flows into operating, investing and financing activities.

Scope: Applies to every entity preparing Ind AS financial statements. A statement of cash flows is required as an integral part of each set of annual financial statements and, when an interim set is presented under Ind AS 34, for the relevant interim periods.

Cash equivalents

Short-term, highly liquid investments held to meet short-term cash commitments, readily convertible to known amounts and subject to insignificant value risk.

Operating

Cash flows from principal revenue-producing activities and other activities not classified as investing or financing.

Investing

Acquisition and disposal of long-term assets and investments not included in cash equivalents.

Financing

Changes in the size and composition of contributed equity and borrowings.

How to use this page: The paragraph register paraphrases the notified requirements and preserves paragraph references for navigation. It does not reproduce or replace the official text.

Full standard map

Paragraph-by-paragraph register

This register covers the complete operative sequence, including deleted/reserved and transition paragraphs where relevant. Closely connected paragraphs are grouped to avoid artificial repetition.

Paragraphs	Requirement and Finin2min decode
1–3	Objective, scope and universal application All entities present cash-flow information because users need it regardless of the entity’s activity or profitability.
4–5	Benefits of cash-flow information Cash flows help assess liquidity, solvency, financial adaptability, valuation inputs and comparability across accounting-policy choices.
6	Defined terms Defines cash, cash equivalents, and operating, investing and financing activities.
7	Cash equivalents Normally short maturity from acquisition—often three months or less—and held to meet short-term commitments, not for investment returns.
8	Bank overdrafts Included in cash equivalents only when repayable on demand and an integral part of cash management, typically with frequent positive/negative fluctuations.
9	Movements within cash management Transfers between cash and cash-equivalent components are excluded from cash flows because they manage cash rather than change total cash resources.
10–12	Three-way classification Present operating, investing and financing cash flows in the manner most appropriate to the business; split a single transaction when components have different classifications.
13–15	Operating activities Usually arise from revenue-producing operations. Financial institutions and dealers may classify certain advances or securities differently because those items are part of operations.
16	Investing activities Includes cash paid/received for long-term assets, investments, qualifying loans and certain derivatives; classification requires that the expenditure can result in a recognised asset.
17	Financing activities Includes cash from issuing shares or debt, repayment of borrowings, owner distributions and principal elements of recognised lease liabilities.
18–20	Direct and indirect methods Operating cash flows may use direct or indirect method. Direct presentation is encouraged; the indirect method reconciles profit to operating cash.
21–24	Gross and net reporting Investing and financing flows are generally gross. Net reporting is limited to specified customer activities, quick-turnover items and certain financial-institution transactions.
25–28	Foreign-currency cash flows Translate transaction cash flows at transaction-date rates; translate foreign-operation cash flows consistently; present exchange-rate effects on cash separately from operating/investing/financing flows.
29–30	Deleted / reserved paragraphs No independent recurring recognition requirement; retain numbering when tracing amendments.
31–34	Interest and dividends Disclose separately and apply Indian classification rules consistently: financial institutions generally operating except dividends paid; other entities generally classify interest paid as financing, interest/dividends received as investing and dividends paid as financing.
35–36	Income taxes Usually operating unless specifically identifiable with an investing or financing transaction; disclose total tax cash flows and allocate only when practicable and supportable.
37–38	Associates, joint ventures and investments Cash flows depend on the accounting method and nature of cash movement; dividends and advances are classified by their underlying nature.
39–42	Obtaining or losing control Present aggregate cash flows from obtaining or losing control separately as investing; disclose consideration, cash acquired/disposed and relevant asset/liability information.
42A–42B	Ownership changes without loss of control Classify as financing because they are transactions with owners in their capacity as owners.
43	Non-cash transactions Exclude non-cash investing and financing transactions from the cash-flow statement but disclose them so users understand financing and investing activity.
44A–44E	Changes in financing liabilities Disclose changes arising from cash flows and non-cash movements, commonly through a reconciliation of opening and closing financing liabilities.
44F–44H	Supplier-finance arrangements Disclose arrangement terms, carrying amounts, amounts already paid by finance providers, payment-date ranges and non-cash changes so users can assess liquidity and cash-flow effects.
45–47	Cash components and accounting policy Reconcile cash-flow-statement cash to balance-sheet amounts and disclose the policy for determining cash equivalents; policy changes follow Ind AS 8.
48–49	Restricted or unavailable cash Disclose significant cash-equivalent balances unavailable for group use, with management explanation.
50–52	Encouraged disclosures Useful information can include undrawn facilities, cash flows for maintenance versus expansion and segment-level operating/investing/financing information.
53–61	Effective-date and transition history Tracks amendments from other standards; assess the paragraph relevant to the entity’s adoption history.
62–63	2025 supplier-finance transition Apply from 1 April 2025. First year: no comparative information, certain opening-period information is not required, and interim disclosures are relieved during the first annual period.

Major areas decoded

Technical requirements in simple language

Cash and cash equivalents

A deposit is not a cash equivalent merely because it is liquid. Purpose, maturity from acquisition, convertibility and value risk all matter. Equity investments are generally excluded unless, in substance, they are cash equivalents.

Operating method choice

The direct method shows major gross receipts and payments and is more decision-useful for forecasting. The indirect method begins with profit and adjusts for non-cash items, accruals and investing/financing effects.

India-specific interest/dividend classification

Unlike IAS 7’s wider policy choice, Ind AS prescribes classification depending on whether the entity is a financial institution. The policy must be applied consistently.

Supplier-finance arrangements

Reverse factoring can make operating cash flows and trade-payable metrics look stronger while creating concentrated liquidity risk. The 2025 disclosures are designed to make that risk visible.

Lease cash flows

Principal payments on recognised lease liabilities are financing. Interest follows the interest-payment rule. Short-term, low-value and variable payments not included in the liability are generally operating.

Acquisitions and disposals

Cash paid to obtain control is investing, net of cash acquired. Subsequent changes in ownership without losing control are financing because they are equity transactions.

Improved visual learning

Finin2min decision map

Finin2min visual decision map for Ind AS 7 Statement of Cash Flows

Downloadable SVG and high-resolution PNG versions are included in this batch’s assets folder. The SVG remains sharp on desktop, mobile and print.

Exceptions and high-risk points

What professionals frequently overlook

Bank overdrafts qualify as cash equivalents only under the narrow repayable-on-demand and integral-cash-management test.
Cash flows can be net only in specified circumstances; convenience is not sufficient.
Capitalised interest is still disclosed in total interest paid and classified under the applicable interest rule.
Tax cash flows are not automatically operating when they are specifically linked to an investing or financing transaction.
Supplier-finance scope excludes arrangements that are only credit enhancements or payment instruments such as ordinary credit cards.
An expenditure described as capital expenditure is not automatically investing if it cannot result in a recognised asset.

Practical application

Transaction examples

Fact pattern

Treatment

Reason

Customer receipts and supplier payments

Operating

They arise from principal revenue-producing activities.

Purchase of machinery for cash

Investing

The cash outflow acquires a long-term productive asset.

Issue of debentures

Financing

The transaction changes borrowings.

Principal paid on lease liability

Financing

It reduces a financing liability.

Non-cash conversion of debt into equity

Excluded from statement

Disclose as a non-cash financing transaction.

Cash paid to buy a subsidiary, net of cash acquired

Investing

Obtaining control is an investing cash flow.

CA / finance / boardroom cases

Applied case studies

1. Direct versus indirect operating section

Application case

A listed manufacturer can generate reliable gross customer-receipt and supplier-payment data but currently uses the indirect method.

Finin2min analysis: Both methods are permitted. The direct method is encouraged and may provide better forecasting information. The entity should ensure reconciliations, controls and consistent comparatives.

2. Overdraft classification

Application case

A ₹40 crore overdraft is repayable on demand, but the balance has remained continuously overdrawn for two years and is used as permanent financing.

Finin2min analysis: Repayable-on-demand wording alone is insufficient. If it is not an integral part of day-to-day cash management with frequent fluctuations, classify as financing rather than a cash-equivalent component.

3. Reverse factoring

Application case

A financier pays selected suppliers on day 45; the entity pays the financier on day 150. The liability remains labelled trade payable.

Finin2min analysis: Assess whether the arrangement meets paragraph 44G. Classification of the liability requires judgement under relevant standards, while paragraphs 44F–44H require transparent supplier-finance disclosures.

4. Foreign-currency acquisition

Application case

An Indian parent acquires a foreign subsidiary and pays foreign currency at closing.

Finin2min analysis: Translate the acquisition cash flow at the transaction-date rate and present it as investing, net of cash acquired. Exchange effects on cash balances are shown separately.

5. Tax paid on disposal gain

Application case

Tax is directly identifiable with the sale of an investment property.

Finin2min analysis: Classify consistently with the investing transaction when specific identification is supportable; otherwise tax is operating.

Global comparison

Ind AS versus IFRS and US GAAP

Topic	Ind AS	IFRS	US GAAP
Interest and dividends	Prescribed classification depending on whether the entity is a financial institution.	IAS 7 permits a broader consistent policy choice among operating/investing/financing.	US GAAP generally classifies interest paid/received and dividends received as operating, dividends paid as financing.
Bank overdrafts	Can be cash equivalents under the narrow integral-cash-management test.	Broadly similar under IAS 7.	Generally financing under US GAAP; cash-netting is more limited.
Supplier finance	2025 disclosures added from 1 April 2025 with Indian transition relief.	IAS 7 supplier-finance amendments effective 2024 internationally.	US GAAP has supplier-finance program disclosures under its own guidance; cash-flow classification depends on facts.
Cash-flow format	Operating, investing and financing; direct or indirect operating method.	Broadly converged.	Same three broad categories, but detailed classification differences are significant.
Acquisition of control	Investing, net of cash acquired.	Broadly similar.	Business-combination cash flows are generally investing, subject to detailed US rules.

Comparison caution: “Broadly aligned” does not mean identical. Entity type, transition date, local corporate law and regulator-specific rules can change the answer.

Implementation lens

Implications for key stakeholders

CFO

Explain cash conversion, classify consistently and challenge arrangements that shift liabilities without improving economics.

Treasury

Own cash-equivalent policy, overdraft assessment, liquidity concentration and supplier-finance data.

Audit committee

Focus on operating-cash quality, non-cash financing, restricted cash and reverse-factoring risk.

FP&A

Reconcile EBITDA, working capital and operating cash; separate sustainable cash generation from timing effects.

ERP / data

Capture gross flows, counterparty, transaction nature, supplier-finance flags and non-cash movements.

Quality-control watchlist

Common errors and exam traps

Treating every deposit under three months as a cash equivalent without assessing purpose and value risk.
Including a permanent overdraft in cash and cash equivalents.
Classifying all interest and dividends using IAS 7 choices instead of Ind AS rules.
Netting investing or financing cash flows outside the narrow permitted circumstances.
Putting non-cash transactions into the statement of cash flows.
Failing to reconcile financing liabilities under paragraphs 44A–44E.
Omitting supplier-finance information because the liability is labelled trade payable.
Classifying all taxes as operating despite direct identification with investing or financing.
Using closing exchange rates for all transaction cash flows without an acceptable approximation.
Failing to explain cash balances unavailable for group use.

Finin2min Q&A

Frequently asked questions

1. Is a three-month deposit always a cash equivalent?

No. Maturity from acquisition, purpose, convertibility to a known amount and insignificant value risk must all be considered.

2. Can operating cash flows use the indirect method?

Yes. The direct method is encouraged, but both methods are permitted.

3. Where does a non-financial company classify interest paid?

Financing under Ind AS 7’s Indian classification rule.

4. Are supplier-finance arrangements automatically financing cash flows?

No. Liability and cash-flow classification depend on facts and relevant standards. The new disclosure requirements apply independently when the arrangement meets the definition.

5. Is purchase of all intangible expenditure investing?

Only cash expenditure resulting in a recognised asset qualifies as investing.

6. Are non-cash lease additions in the cash-flow statement?

No. They are excluded from cash flows and included in relevant non-cash financing disclosures.

Two-minute revision

Finin2min cheat sheet

CASH = Confirm cash movement → Assign O/I/F → Separate gross flows → Handle special rules

Use the visual map together with the paragraph register. For a final accounting conclusion, document facts, contractual terms, materiality, relevant cross-standards and the current notification date.

Validation register

Primary and authoritative sources

ICAI Compendium 2025–26, Volume IIPrimary or authoritative reference used for validation.
Open official source ↗

MCA Second Amendment Rules, 2025Primary or authoritative reference used for validation.
Open official source ↗

IFRS Foundation — IAS 7Primary or authoritative reference used for validation.
Open official source ↗

FASB — ASU 2016-15 Cash FlowsPrimary or authoritative reference used for validation.
Open official source ↗

Review date: 26 June 2026. Recheck MCA notifications and the latest ICAI compendium for reporting periods after this date.