Cash flows are grouped in the Cash Flow Statement as per IND AS - 3 into which of the following major categories?

Correct option is D

According to IND AS 7 (not IND AS 3) on Statement of Cash Flows, cash flows are classified into three major categories:​

• Operating Activities include the primary revenue-generating activities of the enterprise, like cash receipts from the sale of goods/services, payments to suppliers and employees, and taxes paid.

• Investing Activities relate to the acquisition and disposal of long-term assets and other investments, like purchase/sale of property, plant & equipment, or investment securities.

• Financing Activities include transactions that affect the equity and borrowings of the entity, such as proceeds from issuing shares or bonds, repayment of borrowings, and payment of dividends.

This standardized grouping promotes transparency, consistency, and comparability of financial statements across reporting periods and entities.

Information Booster:

• Operating Activities show how much cash is generated from core business operations.

• Investing Activities reflect cash spent on or generated from long-term investments.

• Financing Activities indicate the inflows/outflows from transactions with owners and lenders.

• These three categories provide a complete picture of cash inflows and outflows.

• Classification is mandatory under IND AS 7, aligned with IAS 7.

• Improves decision-making by showing cash sustainability and liquidity.

• Used by investors, creditors, and analysts for cash flow analysis and valuation.

Additional Knowledge:

(a) Cash receipts, cash disbursements and non-cash activities:
This grouping is not used under IND AS. Moreover, non-cash activities are not part of the cash flow statement but are disclosed in the notes. The cash flow statement only shows actual movements of cash and cash equivalents.

(b) Direct cash flows and indirect cash flows:
These are methods of preparing the cash flow statement—not categories of cash flows. The direct method shows actual cash transactions, whereas the indirect method adjusts net profit for changes in working capital and non-cash items. But they do not represent cash flow categories as asked in the question.

(c) Operating activities, investing activities and collection activities:
“Collection activities” is not a valid category under IND AS or any international standards. The correct third category is financing activities, not collection activities.