Ind AS 7 Statement of Cash Flows: A Practitioner Guide for FY 2026-27
Ind AS 7 (Statement of Cash Flows) is the Indian Accounting Standard that prescribes how entities must present information about historical cash flows by classifying them into operating, investing, and financing activities.
The Ministry of Corporate Affairs (MCA) notified Ind AS 7 via the Companies (Indian Accounting Standards) Rules, 2015. It became mandatory for Phase I companies from 1 April 2016. Ind AS 7 supersedes AS 3 (Cash Flow Statements) for companies following the Ind AS framework.
For banks and NBFCs, Ind AS 7 has a significant impact on classification and presentation of interest and advances. Banks classify interest received and paid as operating activities. Para 24 permits net presentation of certain advances and deposits due to their high turnover and short maturity.
Ind AS 7 at a Glance
Ind AS 7 requires every entity preparing financial statements under Indian Accounting Standards to present a statement of cash flows. This statement classifies cash movements into operating, investing, and financing categories. The standard is essential for statutory auditors and finance teams in all listed and large unlisted companies.
| Field | Value |
|---|---|
| Standard Number | Ind AS 7 |
| Full Name | Statement of Cash Flows |
| Issuing Body | ICAI (Accounting Standards Board) |
| Notified By | MCA, Companies (Indian Accounting Standards) Rules, 2015, dated 16 February 2015 |
| Effective Date | 1 April 2015 (voluntary), 1 April 2016 (mandatory Phase I) |
| Supersedes | AS 3 (Cash Flow Statements) for Ind AS-applicable entities |
| Equivalent Standard | AS 3 ↔ Ind AS 7 ↔ IAS 7 |
| Applies To | All companies required to follow Indian Accounting Standards under the Ministry of Corporate Affairs (MCA) roadmap. The statement of cash flows is one of five primary financial statements required under Ind AS 1. |
What is Ind AS 7: Statement of Cash Flows?
Ind AS 7 sets out how an entity must present information about its cash inflows and outflows during a period by classifying them into operating, investing, or financing activities. The objective is to provide users with insight into how the entity generates and uses cash resources.
The Institute of Chartered Accountants of India (ICAI) introduced this standard as part of India's convergence with International Financial Reporting Standards (IFRS). It aligns closely with IAS 7 issued by the International Accounting Standards Board (IASB). Prior to this convergence, Indian companies followed the older standard, AS 3.
Statutory auditors, CFOs, finance controllers, CA students preparing for exams, and corporate finance learners refer to this standard regularly when preparing or reviewing financial statements.
Objective of Ind AS 7
The objectives set out in Ind AS 7 are:
- Require the provision of information about historical changes in cash and cash equivalents through a classified statement.
- Classify cash flows by operating, investing, and financing activities so users can assess an entity’s ability to generate cash and its needs for those cash flows.
- Establish a basis for evaluating the relationship between profitability and net cash flow as well as the effects of price changes on operations.
These objectives reinforce the “true and fair view” principle embedded in Section 129 of the Companies Act, 2013. Accurate classification enhances transparency in reporting actual liquidity positions, critical for investors, regulators such as SEBI or RBI where applicable, and supports robust corporate governance.
Who Must Apply Ind AS 7?
Entities covered, applicability table
All companies required to comply with Indian Accounting Standards must apply Ind AS 7 when preparing financial statements. The MCA roadmap covers:
| Phase | Applicability Criteria |
|---|---|
| Phase I | Listed companies with net worth ≥ Rs 500 crore; unlisted companies with net worth ≥ Rs 500 crore; holding/subsidiary/joint venture/associate entities thereof; from FY 2016-17 onwards |
| Phase II | Listed/unlisted companies with net worth ≥ Rs 250 crore but < Rs 500 crore; holding/subsidiary/joint venture/associate entities thereof; from FY 2018-19 onwards |
| NBFC Roadmap | NBFCs with net worth thresholds per MCA notification; phased adoption since FY 2018-19 |
Entities voluntarily adopting Ind AS also fall within scope.
Scope exclusions
Ind AS 7 excludes:
- Cash flows arising from contracts held for trading purposes, these are recorded as operating cash flows.
- Tax-related cash flows that cannot be specifically identified with investing or financing activities, these are classified as operating activities.
When the standard does not apply
Cash flows from contracts held for trading purposes are always included within operating activities rather than being separately disclosed. Tax payments not clearly attributable to investing or financing are included within operating activities by default, no separate treatment applies.
Key Definitions under Ind AS 7
| Term | Definition |
|---|---|
| Cash | Cash on hand and demand deposits with banks. |
| Cash equivalents | Short-term investments convertible to known amounts within three months at minimal risk. |
| Operating activities | Main revenue-generating activities not classified as investing or financing. |
| Investing activities | Acquisition/disposal of long-term assets or investments outside cash equivalents. |
| Financing activities | Activities changing contributed equity or borrowings structure. |
| Direct method | Discloses gross receipts/payments from operations directly in statement format. |
| Indirect method | Adjusts profit/loss for non-cash items and working capital changes to derive cash flow. |
Recognition and Measurement under Ind AS 7
When to recognise
An entity recognises a cash flow in its statement when there is an actual inflow or outflow involving cash or cash equivalents during the reporting period. Classification depends strictly on the underlying activity’s nature, operating (core business), investing (long-term assets), or financing (equity/debt funding), not merely on asset/liability movement.
For example:
A payment towards purchase of machinery is always classified as an investing activity regardless of whether it was financed through debt or equity.
Initial measurement
All recognised cash flows must be measured at actual amounts received or paid during the period (“gross basis”). Para 22 allows limited netting only in specific cases:
(a) Where an entity acts solely on behalf of customers, such as collections/remittances that reflect customer activity rather than its own.
(b) Where turnover is quick, amounts are large, maturities short, such as certain short-term trading positions in banks/NBFCs.
Formula, Net Cash Flow from Operations (Indirect Method):
Profit before tax
+ Non-cash expenses/losses
- Non-cash incomes/gains
± Changes in working capital
- Income tax paid
= Net cash from operating activities
Interest paid/received and dividends received/paid must be disclosed separately per Para 31, with consistent classification across periods.
Subsequent measurement
There is no subsequent remeasurement under Ind AS 7 once a transaction has been recognised as a cash flow, the amount reported remains fixed at what was actually received/paid during that period.
Unrealised gains/losses on foreign currency balances do not constitute “cash flow” but must be disclosed separately as reconciling items between opening/closing balances per Para 28.
Bank overdrafts may be included within “cash equivalents” only if they form an integral part of an entity’s day-to-day management, a frequent source of error observed during audits.
Direct vs Indirect Method for Operating Cash Flows
Ind AS 7 permits both direct and indirect methods for reporting operating activity cash flows:
Direct method: Discloses major classes such as receipts from customers/payments to suppliers/employees/tax authorities directly in gross terms.
Indirect method: Begins with profit before tax then adjusts for non-cash items like depreciation/amortisation/impairment losses/gains; working capital changes; other non-operating items transferred elsewhere in statement; finally deducts income taxes paid.
In practice across India, including Patron’s audit clients, the indirect method dominates due to ease using accrual-based ledgers. However, both approaches are permitted if applied consistently year-on-year per Para 18-20.
Investing/financing sections must always be presented using direct gross inflow/outflow format regardless of method chosen above.
Worked Examples on Ind AS 7
Example 1: Indirect method for operating cash flows
Sundaram Infotech Pvt Ltd reports profit before tax Rs 45 crore for FY 2025-26. Depreciation/amortisation Rs 12 crore; trade receivables increased by Rs 8 crore; inventories decreased by Rs 3 crore; trade payables increased by Rs 5 crore; income tax paid Rs 11 crore during year.
Computation Table
| Item | Amount (Rs crore) | Computation |
|---|---|---|
| Profit before tax | +45 | As reported |
| Add: Depreciation/amortisation | +12 | Non-cash expense |
| Less: Increase in receivables | -8 | Working capital outflow |
| Add: Decrease in inventories | +3 | Working capital inflow |
| Add: Increase in payables | +5 | Working capital inflow |
| Subtotal, Cash from operations | =57 | Total before tax |
| Less: Income tax paid | -11 | Actual payment |
| Net cash from operating activities | =46 | Final figure |
Journal Entry
No journal entry arises directly, the computation appears only within the statement’s “operating activities” section using indirect method format per standard practice.
Example 2: Classification of dividend payments
Ramesh Textiles Pvt Ltd paid interim dividend Rs 6 crore in October 2025; final dividend Rs 9 crore paid August 2026 relating to FY 2025-26 profits.
Computation Table
| Item | Amount (Rs crore) | Classification |
|---|---|---|
| Interim dividend paid October’25 | -6 | Financing activity outflow |
| Final dividend paid August’26 | -9 | Financing activity outflow |
*Note:* Para 34 allows classification choice between operating or financing activity, but Indian convention favours “financing”.
Journal Entry
On payment date:
Dr Dividend Paid (Equity) Rs 6 crore / Cr Bank Rs 6 crore
Disclosed under “financing activities” section in statement per prevailing practice.
Disclosure Requirements under Ind AS 7
Ind AS 7 requires clear and detailed disclosures in the statement of cash flows, as mandated by Schedule III to the Companies Act, 2013. These disclosures support transparency for users, statutory auditors, and regulators by reconciling cash flow data with other primary financial statements and highlighting non-cash transactions.
| Item | Requirement | Para Reference |
|---|---|---|
| Components of cash and cash equivalents | Disclose components and reconcile to balance sheet figures | Para 45 |
| Restricted cash balances | Disclose significant balances not available for use, with management commentary | Para 48 |
| Non-cash investing and financing transactions | Disclose separately in a note to provide users with relevant information | Para 43 |
| Changes in liabilities from financing activities | Reconciliation between opening and closing balances showing cash and non-cash changes | Para 44A |
| Interest paid, interest received, dividends received, dividends paid | Disclose separately and classify consistently from period to period | Para 31 |
| Income tax cash flows | Disclose separately; classify as operating unless specifically identifiable with investing or financing | Para 35 |
| Effects of foreign currency changes on cash held | Disclose separately as a reconciling item to opening/closing balances | Para 28 |
| Cash flows from acquisitions and disposals | Disclose aggregate consideration, cash component, assets/liabilities acquired/disposed | Para 40 |
Auditors must ensure these disclosures are complete and consistent with SA 700 reporting requirements.
Common Mistakes & Industry-Specific Considerations
Common errors auditors flag
- Including bank overdrafts in cash equivalents without confirming they form part of the entity's cash management.
- Failing to disclose non-cash transactions such as conversion of debt to equity or asset acquisitions through finance leases.
- Inconsistent classification of interest paid (operating vs financing) across periods.
- Netting investing or financing cash flows where Ind AS 7 requires gross presentation.
- Excluding restricted cash balances from cash and cash equivalents without proper disclosure.
- Misclassifying GST collected or paid as separate cash flow rather than netting it within operating activities.
Industry application notes
Banks and NBFCs:
Banks report interest received and paid within operating activities. Advances and deposits often appear on a net basis under Para 24 due to high turnover and short maturity. Auditors should verify that netting is appropriate per the standard.
Real estate:
For real estate companies, sale proceeds from completed inventory are classified as operating activities. Proceeds from sale of investment property are investing activities. Developers holding property long-term must carefully distinguish between these categories for correct classification.
Conglomerates:
At the consolidated level, when subsidiaries are acquired or disposed of, only the actual cash consideration is shown in the group’s statement. The statement must be net of any cash acquired or disposed, following Paras 40-42.
Ind AS 7 vs AS 3 vs IFRS: Key Differences
| Aspect | AS 3 | Ind AS 7 | IFRS (IAS 7) |
|---|---|---|---|
| Method for operating cash flows | Direct or indirect (indirect more common) | Direct or indirect (indirect more common) | Direct or indirect (IAS 7 encourages direct) |
| Bank overdrafts | Treated as financing activity | Included in cash equivalents if part of cash management | Same as Ind AS |
| Interest and dividends classification | Operating (interest paid/received); financing (dividends paid) | Choice permitted with consistent application | Choice permitted with consistent application |
| Non-cash transactions disclosure | Required with limited specificity | Detailed disclosure including reconciliation of liabilities from financing | Same as Ind AS (Para 44A added by 2016 amendment) |
| Foreign currency cash flows | Translated at exchange rate at date of cash flow | Same; effect of FX changes on cash held shown as reconciling item | Same as Ind AS |
| Reconciliation of liabilities from financing | Not required | Required (Para 44A) | Required (Para 44A) |
India’s adoption of Ind AS 7 aligns closely with IFRS (IAS 7), but certain carve-outs exist, such as flexibility in classifying interest/dividends, reflecting Indian business practices. The reconciliation requirement for liabilities arising from financing activities was incorporated into both Ind AS 7 and IAS 7 after global feedback.
Latest Amendments to Ind AS 7 (FY 2026-27)
No amendments have been notified to Ind AS 7 for FY 2026-27 as of 2026-05-02. The standard continues to apply in its existing form.
Related Standards You Should Know
- [Ind AS 1](/ind-as-1-presentation-of-financial-statements/), Statement of cash flows is one of the five primary financial statements required by Ind AS 1.
- [Ind AS 21](/ind-as-21-foreign-exchange-rates/), Foreign currency cash flows translated using Ind AS 21 principles.
- [Ind AS 109](/ind-as-109-financial-instruments/), Cash flows from financial instruments classified per their nature; derivative settlements typically operating or financing.
- [Ind AS 110](/ind-as-110-consolidated-financial-statements/), Consolidated cash flow statement requires elimination of intra-group cash flows.
- [AS 3](/as-3-cash-flow-statements/), Equivalent standard for non-Ind AS companies; substantively similar.
Need Help with Ind AS 7 Compliance?
Patron Accounting LLP supports listed companies, NBFCs, and large private enterprises in achieving full compliance with Ind AS 7 Statement of Cash Flows requirements. Our team combines audit experience with regulatory expertise to deliver practical solutions for your statutory reporting needs.
Our services include:
- Statutory Audit
- Ind AS Advisory
- Financial Reporting & Schedule III
- Disclosure Review
Schedule a 30-minute consultation with our Ind AS team, Pune · Mumbai · Delhi · Gurugram.
Frequently Asked Questions (FAQs)
Every company required to comply with Indian Accounting Standards under the Ministry of Corporate Affairs roadmap must prepare a statement of cash flows under Ind AS 7. This includes all listed companies, large unlisted companies above threshold limits, NBFCs meeting criteria, and their group entities.
The direct method presents major classes of gross receipts and payments directly in the statement. The indirect method starts from profit before tax and adjusts for non-cash items plus working capital movements. Both methods are permitted; most Indian companies use the indirect method due to ease with accrual records.
Under Ind AS 7, bank overdrafts can be included within “cash equivalents” only if they form an integral part of an entity’s day-to-day banking arrangements. Otherwise, they are classified as financing activities. Auditors must confirm this treatment during statutory audit procedures.
Interest paid or received may be classified as either operating or financing/investing activity under Ind AS 7. However, entities must apply their chosen classification consistently across periods. Indian convention often treats interest paid as financing activity for non-financial sector entities.
Significant restricted balances within “cash and cash equivalents”, such as margin money or pledged deposits, must be disclosed separately along with management commentary explaining their nature and reason for restriction per Para 48. This ensures users understand liquidity constraints not visible on face value alone.
No. Non-cash investing or financing transactions, such as conversion of debt into equity or acquisition via finance lease, are excluded from the main statement but disclosed separately in notes per Para 43 so users can assess all relevant changes affecting financial position.
The Ministry of Corporate Affairs notified Ind AS 7 via Companies (Indian Accounting Standards) Rules, 2015 on February 16, 2015. It became mandatory for Phase I companies from April 1, 2016 onwards according to net worth thresholds set out by MCA notifications.
Para 44A requires entities to provide a reconciliation between opening and closing balances for liabilities arising from financing activities, showing both actual movements (cash flows) and non-cash changes such as new leases or foreign exchange effects, either within the main statement or via detailed note disclosure.
Banks often present advances/deposits on a net basis when turnover is quick, amounts are large, and maturities short, permitted by Para 24. This treatment reflects operational reality but must be disclosed transparently so users can assess underlying liquidity movements accurately.
GST collected on sales is not shown separately as an inflow; it is netted off against GST paid within operating activities under Ind AS 7 principles. Only the net amount relating to core business operations appears in the final reported figure for operating activity section.
About This Article
Reviewed by CA & CS Team · Patron Accounting LLP
Technical reviewer: CA Sundram Gupta, FCA
Last reviewed: 2026-05-02
Sources: ICAI Compendium of Accounting Standards · MCA Notification (Companies (Indian Accounting Standards) Rules, 2015, dated 16 February 2015) · IFRS Foundation