Plain definition
IAS 7 groups cash flows into three categories.
Operating. Investing. Financing.
Management still needs to separate the uses within each category.
Operating cash supports ordinary activity.
Payments to suppliers, employees, and tax authorities may repeat. Their timing determines the cash available to continue operating.
Investing cash buys long-term assets or investments.
It reduces liquidity now, but may build capacity or returns later.
Owner distributions reduce cash and equity.
They are not operating expenses, but they reduce the cash available for growth and obligations.
Debt repayment reduces cash and debt.
Principal reduces the liability. Interest paid is separate; its classification depends on the applicable IAS 7 rules and accounting policy.
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 go?
| Opening cash | |
|---|---|
| Cash received | |
| Cash paid | |
| Closing cash |
Why it matters
A lower cash balance does not always mean a weaker business.
Test every cash outflow.
Where did it go?
Will it repeat?
What was received or settled?
Can its timing change?
Was it essential?
Practical consequence
Forecast cash by destination, amount, and date.
Separate operating payments, asset purchases, owner distributions, debt repayments, and one-offs.
The balance shows what remains. The destination shows what changed.