Ind AS 7: the cash flow statement format, done right.

What is Ind AS 7?

Ind AS 7, Statement of Cash Flows, requires an entity to present a statement showing the cash inflows and outflows of a period, classified under three heads — operating, investing and financing activities. It is one of the primary statements under the Ind AS framework (alongside the balance sheet, statement of profit and loss, and statement of changes in equity), and it is mandatory wherever Ind AS applies — you cannot omit it because the entity is "just" a manufacturing or trading company.

The purpose is simple to state and easy to get wrong in practice: profit is an accounting number affected by accruals, provisions and non-cash charges like depreciation; cash flow tells the reader — a banker, an auditor, a director — whether the business actually generated or consumed cash, and from which of its three broad activities.

Classifying cash flows: operating, investing, financing

Ind AS 7 defines the three buckets by reference to the nature of the activity, not by which line in the profit and loss account the related income or expense sits in:

• Operating activities — the principal revenue-producing activities of the entity: cash from customers, cash paid to suppliers and employees, and generally income tax paid. This is the bucket that should, over time, be consistently positive for a healthy going concern.
• Investing activities — acquisition and disposal of long-term assets and other investments not included in cash equivalents: purchase/sale of property, plant and equipment, investments, and loans given to other entities (not as part of a lending business).
• Financing activities — activities that change the size and composition of the entity's own equity and borrowings: proceeds from share issue, proceeds and repayment of borrowings, and lease liability payments.

One rule preparers forget: whichever classification an entity picks for interest/dividend received and paid, it must be applied consistently from period to period and disclosed as an accounting policy — you cannot flip classification to make a particular year's operating cash flow look better.

Ind AS 7 vs the old AS 3 — what actually changed

Most of the mechanics carry over from AS 3, so an experienced preparer isn't starting from scratch. But a handful of differences matter enough to catch a first-time Ind AS transition off guard:

Exact clause references and any further amendments should be checked against the notified text on the MCA portal before you finalise a technical opinion — standards get amended and this summary is a working guide, not a substitute for the primary text.

Worked example: full cash flow statement (indirect method)

Take a manufacturing company, Ambika Industries Pvt Ltd, for the year ended 31 March 2026. Profit before tax for the year is ₹18,00,000. The relevant movements are below, and the statement is built using the indirect method — the format almost every Indian company uses in practice.

The closing figure of ₹13,50,000 should tie exactly to the "cash and cash equivalents" line in the balance sheet (cash on hand, bank balances, and any short-term deposits with original maturity of three months or less). If it doesn't, the mismatch is almost always a misclassified item — a fixed deposit with the wrong maturity treatment, or a bank overdraft picked up in the wrong bucket.

Practical notes for a practising CA

• Netting off items that must be shown gross — e.g. showing only the net movement in borrowings instead of separate 'proceeds' and 'repayment' lines (netting is permitted only for items with quick turnover, like revolving credit drawn and repaid within the period, or items where the entity is substantially holding cash on behalf of others).
• Forgetting the financing-activities reconciliation (liabilities roll-forward) — this is a distinct schedule most preparers only remember after the first review comment.
• Treating a bank overdraft that is part of the cash management arrangement as a financing inflow/outflow instead of folding it into cash and cash equivalents.
• Misclassifying interest capitalised to a qualifying asset under Ind AS 23 — the payment still needs to be split correctly between investing (capitalised portion, if tracked as PPE cash outflow) and operating/financing depending on entity policy; get this consistent with the accounting policy note.
• Picking up the closing cash balance from the balance sheet without adjusting for cash equivalents (e.g. short-term deposits with original maturity of three months or less) — the Ind AS 7 cash equivalent test is about original maturity at the date of investment, not remaining maturity at year-end.
• Not reconciling the closing balance in the cash flow statement to the balance sheet cash & cash equivalents note — auditors check this every time, and it should tie out to the rupee.

How TatvaBooks helps

TatvaBooks maintains GST-correct double-entry books through the year, so the trial balance and working-capital movements a cash flow statement is built from are already reconciled — no reconstructing receivables and payables movements from scratch at year-end. For clients who need Ind AS-aligned statements, that clean underlying ledger is most of the preparation work already done; the classification and disclosure judgement above is still yours. See how TatvaBooks fits a CA practice on the for Chartered Accountants page.

Frequently asked questions