SFRS(I) 1-7 requires entities to present a statement of cash flows, classifying cash flows during the period into operating, investing, and financing activities. Cash is the lifeblood of any business, and the statement of cash flows shows where cash came from and where it went — information that the accrual-based statement of profit or loss cannot convey. It is the Singapore equivalent of IAS 7 under IFRS and Ind AS 7 in India, and, because SFRS(I) is issued to be identical to IFRS, it is in substance IAS 7 as applied in Singapore.
Objective and scope
The objective is to require the provision of information about the historical changes in cash and cash equivalents of an entity by means of a statement of cash flows, which classifies cash flows during the period according to operating, investing, and financing activities. This information helps users assess the entity's ability to generate cash and cash equivalents and its needs to use those cash flows. An entity that prepares financial statements in accordance with SFRS(I) presents a statement of cash flows as an integral part of its financial statements for each period.
Cash and cash equivalents
Cash comprises cash on hand and demand deposits. Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. Cash equivalents are held for the purpose of meeting short-term cash commitments rather than for investment or other purposes; an investment normally qualifies as a cash equivalent only when it has a short maturity (for example, three months or less from the date of acquisition). Bank overdrafts repayable on demand that form an integral part of an entity's cash management may be included as a component of cash and cash equivalents.
The three classifications
The statement of cash flows classifies all cash flows into three categories.
Operating activities are the principal revenue-producing activities of the entity and other activities that are not investing or financing activities. Cash flows from operating activities generally result from the transactions and other events that enter into the determination of profit or loss — for example, cash receipts from the sale of goods and the rendering of services, cash payments to suppliers and employees, and cash payments or refunds of income taxes. The amount of cash flows arising from operating activities is a key indicator of the extent to which the entity's operations have generated sufficient cash to repay loans, maintain operating capability, pay dividends, and make new investments without recourse to external financing.
Investing activities are the acquisition and disposal of long-term assets and other investments not included in cash equivalents — for example, cash payments to acquire property, plant, and equipment and intangibles, cash receipts from their sale, and cash payments to acquire or receipts from selling equity or debt instruments of other entities.
Financing activities are activities that result in changes in the size and composition of the contributed equity and borrowings of the entity — for example, cash proceeds from issuing shares or other equity instruments, cash proceeds from issuing debentures and loans, cash repayments of amounts borrowed, and payments for the repurchase of the entity's shares.
Direct and indirect methods
Cash flows from operating activities may be reported using one of two methods:
Under the direct method, major classes of gross cash receipts and gross cash payments are disclosed (for example, cash received from customers and cash paid to suppliers and employees). The standard encourages the direct method because it provides information useful in estimating future cash flows that is not available under the indirect method.
Under the indirect method, profit or loss is adjusted for the effects of non-cash transactions (such as depreciation and provisions), any deferrals or accruals of past or future operating cash receipts or payments, and items of income or expense associated with investing or financing cash flows. In practice, the indirect method is the more commonly used.
Cash flows from investing and financing activities are reported using the direct method — major classes of gross cash receipts and gross cash payments are reported separately (with limited exceptions where netting is permitted).
Interest, dividends, and taxes
Cash flows from interest and dividends received and paid are each disclosed separately and classified in a consistent manner from period to period. For a non-financial entity, there is some flexibility (for example, interest paid may be classified as operating or financing, and interest and dividends received as operating or investing), provided the classification is applied consistently. Cash flows arising from taxes on income are separately disclosed and classified as cash flows from operating activities unless they can be specifically identified with financing and investing activities.
A brief illustration
A Singapore company prepares its statement of cash flows under SFRS(I) using the indirect method for operating activities. It starts with profit before tax, adds back non-cash items such as depreciation, adjusts for changes in working capital (receivables, payables, and inventory), and deducts income taxes paid, to arrive at net cash from operating activities. In investing activities, it shows the cash paid to buy new equipment and cash received from selling an old vehicle. In financing activities, it shows proceeds from a new bank loan, repayment of an existing loan, and dividends paid. The net movement across the three sections reconciles the opening and closing balances of cash and cash equivalents. The presentation mirrors what an IFRS or Ind AS preparer would produce.
How SFRS(I) 1-7 relates to IFRS and Ind AS
SFRS(I) 1-7 is identical to IAS 7 under IFRS, and therefore very closely aligned with Ind AS 7 in India — the same three-way classification of cash flows, the same definition of cash and cash equivalents, the same choice between the direct and indirect methods for operating activities, and the same treatment of interest, dividends, and taxes. Because both Singapore and India converge to the IFRS text, the statement of cash flows is prepared on materially the same basis across the three frameworks.
Common pitfalls
Recurring issues include misclassifying cash flows between the three activities (for example, treating the purchase of equipment as operating rather than investing); classifying interest and dividends inconsistently between periods; including items that are not genuinely cash or cash equivalents; and failing to reconcile the net movement in the statement to the opening and closing cash and cash equivalents in the statement of financial position.
Why this is cleaner on a unified system
Preparing a reliable statement of cash flows depends on being able to trace cash movements and reconcile them across the accounts — far easier when all financial data lives in one connected system rather than being reassembled from separate tools. When operating, investing, and financing cash flows all draw on a single source of truth, producing a statement that ties back to the movement in cash and cash equivalents is more straightforward, and the close is faster and cleaner.
This article is a detailed educational summary of SFRS(I) 1-7 in plain language. It is not a substitute for the full text of the standard. Accounting standards are amended from time to time; always verify the current, authoritative text of SFRS(I) 1-7 as issued by the Singapore Accounting Standards Council before relying on it, and consult a qualified professional accountant for application to your specific circumstances.