Investing and financing activities

IAS 7 sorts every cash flow into one of three activities:

• Operating — the principal revenue-producing activities and anything that isn't investing or financing: receipts from customers, payments to suppliers and employees, most taxes.
• Investing — acquiring and disposing of long-term assets and investments not held as cash equivalents: buying and selling property, plant and equipment, intangible assets, shares and debt instruments of other entities, loans made to others. Only spending that results in a recognised asset qualifies; research costs expensed through profit are operating.
• Financing — changes in the size and composition of contributed equity and borrowings: issuing shares, buying them back, drawing and repaying loans and bonds, and the principal portion of lease payments.

Gross, not net. Investing and financing flows are reported gross: a new loan of 10,000 and a repayment of 18,000 are two lines, not one net repayment of 8,000. To derive them, roll each balance forward: opening + additions − disposals = closing for PPE at cost, opening + new borrowing − repayments = closing for loans, opening dividends payable + declared − paid = closing.

Non-cash transactions are excluded. Acquiring an asset by issuing shares, or under a new lease, involves no cash at the start. IAS 7 keeps it out of the statement and requires disclosure elsewhere — along with a reconciliation of the movements in liabilities from financing activities.

Interest and dividends. Under IAS 7 as it stands for 2026 reporting, an entity that isn't a financial institution may classify interest paid as operating or financing, interest and dividends received as operating or investing, and dividends paid as financing or operating — a policy applied consistently. Income taxes paid are operating unless specifically identified with investing or financing. Under US GAAP (ASC 230), interest paid and interest and dividends received are operating, and dividends paid are financing.