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IAS 7 — Statement of Cash Flows: Complete Reference
What is IAS 7?
IAS 7 Statement of Cash Flows (IASB) requires all IFRS entities to show how cash and cash equivalents changed during the period — split into three mandatory activities.
Indirect method — IAS 7.18a
Start from net profit, adjust for non-cash items and working capital. Most common under IFRS.
STEP 1 — Net Profit After Tax (PAT) PAT = Revenue − COGS − Opex + Other Income − D&A − Finance Cost − Tax STEP 2 — Add back non-cash items (IAS 7.20) + Depreciation & Amortisation + ROU Asset Depreciation (IFRS 16) + Impairment / Write-down + Share-based Payment Expense + Provisions Movement − Gain on Asset Disposal ← reclassify to investing = Pre-Working Capital Subtotal STEP 3 — Working capital movements (CY − PY) Assets: − Increase / + Decrease Liabilities: + Increase / − Decrease STEP 4 — IAS 7 classified items + Interest Received (operating or investing — entity choice) + Dividends Received (operating or investing — entity choice) − Tax Paid (cash) (IAS 7.35 — operating default) ═══════════════════════════════════════════ = NET CASH FROM OPERATING ACTIVITIES (A)
Direct method — IAS 7.18b (encouraged)
IAS 7 encourages the direct method. This tool auto-derives it — both methods give identical closing cash.
Cash received from customers = Revenue + Other Income − Δ Receivables Cash paid to suppliers = COGS + Opex + Δ Inventory − Δ Payables − Δ Accruals Operating CF = Total Receipts − Total Payments − Tax Paid ✓ Direct closing = Indirect closing
IFRS 16 effect on IAS 7
| Item | Pre-IFRS 16 | Under IFRS 16 |
|---|---|---|
| Lease payment | Operating outflow | Financing: principal + interest |
| P&L charge | Rent expense | ROU depreciation + interest |
| CF add-back | None | + ROU depreciation (non-cash) |
| Operating CF | Lower | Higher |
| Financing CF | Zero | Lower |
ROU Depreciation = Lease PV ÷ Remaining Term (years) Interest Expense = Lease PV × Incremental Borrowing Rate % Principal Repaid = Annual Cash Payment − Interest Expense Operating CF → + ROU Depreciation (non-cash add-back) Financing CF → − Principal Repayment Financing CF → − Interest Paid
IAS 7 classification choices
| Item | IAS 7 permits | This tool default |
|---|---|---|
| Interest paid | Operating OR Financing | Financing |
| Interest received | Operating OR Investing | Operating |
| Dividends paid | Operating OR Financing | Financing |
| Dividends received | Operating OR Investing | Operating |
| Tax paid — IAS 7.35 | Operating (default) | Operating |
Closing cash reconciliation — IAS 7.45
Opening Cash & Cash Equivalents + Net Cash from Operating Activities (A) + Net Cash from Investing Activities (B) + Net Cash from Financing Activities (C) ± Effect of Exchange Rate Changes (D) ← IAS 7.28 ══════════════════════════════════════════════ = CLOSING CASH & CASH EQUIVALENTS
IAS 7 disclosure requirements
- Components of cash and cash equivalents (IAS 7.48)
- Significant non-cash transactions (IAS 7.43)
- Classification policy for interest & dividends (IAS 7.31)
- Restrictions on use of cash balances (IAS 7.48)
- Undrawn borrowing facilities (IAS 7.50)