Plain definition
IAS 7 groups cash flows into three categories.
Operating. Investing. Financing.
Management still needs to separate the sources within each category.
Operating cash comes from ordinary activity.
Customer cash may repeat. Advances also bring cash in—but they create an obligation to deliver or refund.
Investing cash often comes from selling long-term assets.
It improves liquidity, but it may not recur. The business has also exchanged an asset for cash.
Owner capital increases cash and equity.
It can fund growth without creating debt. But it is not revenue—and it does not prove that operations generated cash.
Borrowing increases cash and debt.
The cash is available now. Interest, repayment dates, covenants, and restrictions follow later.
Worked example
Monetary examples use Saudi riyals (SAR). The same principles apply in other currencies.
Opening cash: .
Cash received: .
Cash paid: .
Closing cash: .
But where did the come from?
| Opening cash | |
|---|---|
| Cash received | |
| Cash paid | |
| Closing cash |
Why it matters
A higher cash balance does not always mean a stronger business.
Test every increase in cash.
Where did it come from?
Will it repeat?
What must the company deliver or repay?
Is its use restricted?
Practical consequence
Forecast cash by source, amount, and date.
Keep operations, asset sales, owner capital, borrowing, and one-offs separate.
The balance shows how much cash you have. The source shows what it means.