Definition
Statement of cash flows is the formal name in IFRS, Canadian ASPE, and US GAAP for the financial statement that reconciles net profit to actual cash movements, splitting cash flow into operating, investing, and financing sections over a defined accounting period. It is functionally identical to the cash flow statement (the everyday name used in UK and AU practice). The two are interchangeable.
What the statement of cash flows means in practice
For a bookkeeper, the statement of cash flows is the bridge between the accruals-based P&L and the actual bank balance on the balance sheet. The P&L can show 100,000 of profit while the bank balance falls by 30,000 because the profit is locked up in slow-paying customer invoices, growing inventory, or capital expenditure. The statement of cash flows traces every reason for the gap.
The format under IAS 7, FRS 102 Section 7, ASPE Section 1540, AASB 107, NZ IAS 7, and SFRS(I) 7 is essentially identical: three sections. Cash from operating activities starts with net profit, adds back non-cash items (depreciation, amortisation), and adjusts for working-capital movements (changes in receivables, payables, inventory, prepayments). Cash from investing activities captures fixed asset purchases and sales, business acquisitions, and investments. Cash from financing activities captures loan drawdowns and repayments, dividends paid, and share issues. The three sub-totals plus opening cash equal closing cash, which ties back to the balance sheet.
A practical example: a Canadian corporation with CAD 75,000 net profit for the year. Operating: 75,000 net profit, plus 10,000 depreciation, minus 15,000 increase in AR, plus 4,000 increase in AP. Operating cash 74,000. Investing: 8,000 spent on equipment. Investing cash (8,000). Financing: 25,000 dividend paid to shareholder. Financing cash (25,000). Net cash movement: 74,000 minus 8,000 minus 25,000 equals 41,000. Opening cash 22,000; closing cash 63,000. Closing cash ties to the balance sheet.
How the statement of cash flows works by country
United Kingdom
FRS 102 Section 7 is the relevant UK GAAP standard and uses “Statement of Cash Flows” as the formal title. Small companies under the FRS 102 size thresholds (turnover under 10.2 million, balance-sheet total under 5.1 million, fewer than 50 employees on a two-of-three basis) are exempt. IFRS adopters use IAS 7 with the same title. Both direct and indirect methods are permitted; indirect is the default in UK practice.
Australia
AASB 107 is the Australian equivalent of IAS 7 and uses “Statement of Cash Flows” as the formal title. Required for every reporting entity. The everyday term in AU practice is “cash flow statement” though the lodged document uses the formal IFRS title.
Canada
ASPE Section 1540 and IAS 7 both use “Statement of Cash Flows” as the formal title in Canadian practice. The everyday term is also “statement of cash flows” (rather than the UK and AU everyday “cash flow statement”). This is the one country where the formal and informal terms coincide.
New Zealand
NZ IAS 7 mirrors IAS 7 and uses “Statement of Cash Flows” as the formal title. Required for Tier 1 and Tier 2 entities under the XRB framework. Tier 3 simple-format entities prepare a simplified cash receipts and payments schedule instead, not a full statement of cash flows.
Singapore
SFRS(I) 7 uses “Statement of Cash Flows” as the formal title. Required for full-IFRS entities. Smaller companies using SFRS for Small Entities prepare a simplified format that focuses on the operating section.
Related terms
The statement of cash flows is one of the four primary financial statements:
- Cash flow statement is the everyday synonym in UK and AU practice.
- The balance sheet provides the opening and closing cash positions the statement reconciles between.
- The income statement provides the starting net profit under the indirect method.
- The statement of changes in equity is the fourth of the primary financial statements.
- Net profit is the starting point of the operating section under the indirect method.
- Working capital movements are the main non-cash adjustments in the operating section.
See also
For the structural mechanics of the cash flow statement (direct vs indirect method, the three sections), see the cash flow statement entry.
FAQ
See the answered questions above for statement-of-cash-flows vs cash-flow-statement, the plural form, and small-company exemptions.