Ind AS 7, Statement of Cash Flows, provides guidance on the presentation and disclosure of cash flows from operating, investing, and financing activities in the financial statements. The standard aims to enhance the usefulness and comparability of financial statements by providing users with information about an entity’s liquidity, solvency, and financial adaptability.
Ind AS 7 requires entities to prepare a statement of cash flows, which shows the changes in cash and cash equivalents during a reporting period. It classifies cash flows into three categories: operating activities, investing activities, and financing activities. Operating activities include cash flows directly related to the principal revenue-generating activities of the entity. Investing activities involve cash flows from the acquisition or disposal of long-term assets and other investments. Financing activities include cash flows resulting from obtaining or repaying capital, such as issuing or redeeming shares, borrowing or repaying loans, and payment of dividends.
The standard provides guidance on the presentation of the statement of cash flows, including the use of the direct or indirect method to report cash flows from operating activities. It also requires entities to disclose significant non-cash investing and financing activities and to reconcile the net cash provided by (or used in) operating activities to the net profit or loss reported in the income statement.
Ind AS 7 emphasizes the importance of cash flow information in assessing an entity’s ability to generate future cash flows and meet its obligations. By providing a clear and comprehensive statement of cash flows, the standard enables users to evaluate an entity’s cash flow prospects, liquidity position, and capacity to fund future operations and investments. It enhances transparency and facilitates informed decision-making by investors, creditors, and other stakeholders.
