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 the accrual-based statement of profit or loss cannot convey. It is the Singapore equivalent of IAS 7 under IFRS, 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 information about the historical changes in cash and cash equivalents of an entity by means of a statement of cash flows, classified according to operating, investing, and financing activities. This helps users assess the entity's ability to generate cash and its needs to use those cash flows. An entity that prepares financial statements under 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 readily convertible to known amounts of cash and subject to an insignificant risk of changes in value — held to meet short-term cash commitments rather than for investment (normally with a short maturity of three months or less from acquisition). Bank overdrafts repayable on demand that form an integral part of cash management may be included as a component of cash and cash equivalents.
The three classifications
Operating activities are the principal revenue-producing activities of the entity and other activities that are not investing or financing — for example, cash receipts from customers, cash payments to suppliers and employees, and income taxes paid. The cash flow from operating activities is a key indicator of whether operations generate enough cash to repay loans, maintain operating capability, pay dividends, and make new investments without external financing.
Investing activities are the acquisition and disposal of long-term assets and other investments not included in cash equivalents — for example, buying and selling property, plant, and equipment, and acquiring or disposing of investments in other entities.
Financing activities result in changes in the size and composition of the contributed equity and borrowings of the entity — for example, proceeds from issuing shares, proceeds from and repayments of borrowings, and the repurchase of the entity's shares.
Direct and indirect methods
Cash flows from operating activities may be reported using either the direct method (disclosing major classes of gross cash receipts and gross cash payments) or the indirect method (adjusting profit or loss for non-cash items, deferrals and accruals, and items associated with investing or financing cash flows). The standard encourages the direct method, but the indirect method is more commonly used in practice. Cash flows from investing and financing activities are reported using the direct method (major classes of gross receipts and payments shown separately).
Interest, dividends, and taxes
Cash flows from interest and dividends received and paid are each disclosed separately and classified consistently from period to period. For a non-financial entity, there is flexibility (for example, interest paid may be operating or financing, and interest and dividends received may be operating or investing), provided the classification is applied consistently. Cash flows from income taxes are separately disclosed and classified as operating unless they can be specifically identified with financing or investing activities.
A worked example
A Singapore company prepares its statement of cash flows using the indirect method for operating activities:
| Statement of cash flows (indirect method) | S$ |
|---|---|
| Operating activities | |
| Profit before tax | 500,000 |
| Add: depreciation (non-cash) | 120,000 |
| Change in working capital (increase in receivables/inventory) | (90,000) |
| Income taxes paid | (80,000) |
| Net cash from operating activities | 450,000 |
| Investing activities | |
| Purchase of equipment | (300,000) |
| Proceeds from sale of vehicle | 30,000 |
| Net cash used in investing activities | (270,000) |
| Financing activities | |
| Proceeds from new bank loan | 200,000 |
| Repayment of existing loan | (150,000) |
| Dividends paid | (50,000) |
| Net cash from financing activities | 0 |
| Net increase in cash and cash equivalents | 180,000 |
The net increase in cash (S$180,000) reconciles the opening and closing balances of cash and cash equivalents in the statement of financial position. The indirect method starts from profit before tax, adds back non-cash items such as depreciation, adjusts for working-capital movements, and deducts taxes paid to reach net cash from operations; investing and financing sections then show the actual gross cash flows.
How SFRS(I) 1-7 relates to IFRS
SFRS(I) 1-7 is identical to IAS 7 under IFRS — the same three-way classification, the same definition of cash and cash equivalents, the same choice between direct and indirect methods, and the same treatment of interest, dividends, and taxes. An entity familiar with IAS 7 will find SFRS(I) 1-7 to be the same standard.
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 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.