Net presentation is permission for specified flows
Ind AS 7 paragraph 21 requires major classes of investing and financing receipts and payments to be reported separately on a gross basis, except for the paragraph 22 and 24 cases. Paragraph 22 permits specified operating, investing or financing flows to be reported net. The fact that two movements use the same bank account or leave a small closing balance is not itself an exception. This guide is checked on 26 October 2026 and concerns Ind AS presentation, not an exemption from keeping complete cash records. ICAI Ind AS 7, paragraphs 21–24 and 23A.
Customer activity must actually be the customer’s
Paragraph 22(a) concerns cash received and paid on behalf of customers where the flows reflect the customer’s activity rather than the entity’s. Paragraph 23 illustrates bank demand deposits, customer funds held by an investment entity and rents collected for and paid to property owners. Identify the legal and economic capacity, ownership of funds, settlement obligations and any distinct fee. An entity’s own revenue and supplier purchases do not become customer flows merely because management calls them pass-through.
Rapid turnover needs the complete fact pattern
Paragraph 22(b) refers to quick turnover, large amounts and short maturities. Keep evidence supporting all relevant features. Paragraph 23A gives examples involving credit-card customer principal, investment purchases/sales and other short-term borrowings, for example maturities of three months or less. The three-month illustration is not blanket permission to net every three-month instrument irrespective of the paragraph 22(b) facts. Nor does a same-day receipt and payment automatically prove customer agency.
Financial institutions have specific additional cases
Paragraph 24 permits net presentation for a financial institution’s acceptance and repayment of fixed-maturity deposits, placements with and withdrawals from other financial institutions, and customer advances/loans and their repayment. First establish the reporting entity’s financial-institution status and the nature of the flow. A manufacturing company’s deposit with its bank does not acquire paragraph 24 permission simply because the counterparty is a financial institution. Check any other genuinely applicable exception separately.
Netting does not change the underlying classification
Maintain a gross schedule and show exactly which permitted population was netted. Distinguish principal from fees, interest and other independently classified flows. Do not use a netting decision to relabel an investing cash movement as operating or mix customer money with an unrelated financing facility. The choice of direct or indirect operating presentation does not by itself authorise netting the investing and financing sections.
Reconcile net lines back to the bank
A useful audit trail shows gross receipts, gross payments, net amount, statutory exception and cash-flow category for each population. Cash movement between components already included in cash and cash equivalents requires a separate perimeter assessment, not paragraph 22 as an automatic label. The August 2026 MCA amendment changes paragraph 37 and related effective-date provisions, not these netting exceptions. Preserve current policy and the evidence supporting its application; a small net number can conceal very large gross liquidity activity.
Applicable primary references
ICAI Ind AS 7, paragraphs 21–24 and 23A MCA Gazette G.S.R. 725(E), 12 August 2026: amendment scope
Six worked illustrations
All facts and amounts below are fictional. Assumptions describe the model, not additional statutory rules.
Illustrative example 1: Ordinary investing flows remain gross
A manufacturer receives ₹12,00,000 from an asset sale and pays ₹20,00,000 for different equipment. Net movement is negative ₹8,00,000, but assume no paragraph 22/24 exception applies. Present the ₹12,00,000 receipt and ₹20,00,000 payment separately as their appropriate major investing classes rather than only the net ₹8,00,000.
Illustrative example 2: Rent collected for owners
A qualifying agent collects ₹9,00,000 of rents for owners and remits ₹8,40,000 during the period, leaving ₹60,000 awaiting remittance. Assuming these are entirely customer-activity flows with no agent fee embedded, paragraph 22(a) permits a net ₹60,000 inflow. That amount is not automatically the agent’s revenue.
Illustrative example 3: Customer funds with an investment entity
A qualifying investment entity receives ₹50,00,000 for customers and returns ₹47,00,000 of those customer funds. Net customer movement is ₹3,00,000. A separate ₹1,00,000 management-fee receipt is not silently absorbed into that net principal line; assess its own presentation.
Illustrative example 4: Short-term borrowing population
Assume established large, rapid-turnover borrowings with two-month maturities qualify under paragraph 22(b). Drawdowns total ₹90,00,000 and repayments ₹85,00,000, leaving a net ₹5,00,000 financing inflow. The two-month assumption supports, but does not replace, the complete eligibility assessment.
Illustrative example 5: Fixed-maturity deposits at a financial institution
A financial institution accepts ₹2,00,00,000 of fixed-maturity deposits and repays ₹1,70,00,000. Paragraph 24(a) permits net principal presentation of ₹30,00,000 on the assumed facts. Identify interest cash flows separately rather than treating this principal difference as interest income.
Illustrative example 6: Customer loans at a financial institution
Qualifying customer-loan advances are ₹80,00,000 and principal repayments ₹65,00,000. Net principal cash movement is negative ₹15,00,000 under paragraph 24(c). A separate ₹6,00,000 interest receipt is separately analysed and is not principal repayment merely because it came from the same borrowers.
Ten-step verification table
| Step | Action | Evidence |
|---|---|---|
| 1 | Define the reporting entity | Ind AS applicability and financial-institution status where asserted. |
| 2 | Build the gross cash schedule | Complete receipts/payments and bank reconciliation. |
| 3 | Classify each actual flow | Operating, investing or financing basis. |
| 4 | Identify customer-capacity flows | Contracts, ownership and settlement obligations. |
| 5 | Test rapid-turnover populations | Amount scale, turnover speed and maturity evidence. |
| 6 | Check paragraph 24 activities | Entity status and specified deposit/placement/loan population. |
| 7 | Separate fees and interest | Distinct principal and income/expense cash movements. |
| 8 | Document the chosen exception | Paragraph, reasons and excluded flows. |
| 9 | Reconcile each net line | Gross receipts less gross payments to presented amount. |
| 10 | Review policy and disclosures | Current standard, consistent application and cash perimeter. |
Sixteen practitioner FAQs
1. Is net presentation the general investing/financing rule?
No. Paragraph 21 requires separate major gross classes subject to specified exceptions.
2. Does sharing a bank account permit netting?
No. Banking convenience is not a statutory exception.
3. Can customer flows be presented net?
Paragraph 22(a) permits this where they genuinely reflect customer activity rather than the entity’s.
4. Are collected rents always the collector’s revenue?
No. Analyse whether the entity is collecting on behalf of property owners.
5. Can own purchases be called pass-through to justify netting?
A label is insufficient; establish the actual legal and economic activity.
6. What features does paragraph 22(b) identify?
Quick turnover, large amounts and short maturities.
7. Does a short maturity alone suffice?
No. Document the full relevant fact pattern.
8. What does the three-month example concern?
Paragraph 23A illustrates other short-term borrowings, rather than providing a universal maturity-only exemption.
9. Does paragraph 24 apply to every company using a bank?
No. It specifically concerns the reporting financial institution and specified activities.
10. What fixed-maturity deposit flows does it identify?
Acceptance and repayment by the financial institution under paragraph 24(a).
11. Can customer loan principal be netted by a financial institution?
Paragraph 24(c) permits net presentation of its specified advances/loans and repayments.
12. Should fees disappear into net principal?
No. Identify and classify distinct fee and interest cash flows separately.
13. Does the indirect operating method waive gross investing disclosures?
No. The presentation methods do not remove paragraph 21’s requirement.
14. Does a net inflow equal profit?
No. A customer-fund liability or borrowing increase can produce an inflow without revenue or profit.
15. Did the August 2026 amendment replace these exceptions?
The verified Ind AS 7 amendment concerns paragraph 37, not paragraphs 21–24.
16. What evidence should accompany every net line?
Its gross receipt/payment bridge, classification and documented statutory exception.
Conclusion
Start with gross cash movements and document the specific Ind AS 7 exception before presenting customer funds, short-term items or financial-institution flows net.