Cash flow statement: what it means for UAE businesses.

What cash flow statement means

Also called: Statement of cash flows.

A cash flow statement shows how cash moved through a business during a period. IAS 7 sorts every cash flow into three groups: operating activities, the main trading of the business; investing activities, such as buying equipment; and financing activities, such as capital introduced, loans and dividends. The total explains the change between opening and closing cash.

In the UAE the statement is part of the complete set of financial statements defined in Ministerial Decision No. 114 of 2023 for Corporate Tax, alongside the balance sheet and income statement. It should not be confused with the cash basis of accounting, which that same decision allows only where revenue does not exceed AED 3,000,000. A cash flow statement sits alongside accrual accounts; it does not replace them.

For an SME it answers the question the profit and loss statement cannot: where did the money go? A profitable trading company can still run short of cash when customers pay late, because VAT becomes due on the date of supply, often the invoice date, and must reach the FTA by the 28th day after the tax period ends, whether or not the customer has paid.

How it works

• Operating cash flow can be shown by the direct method, listing receipts and payments, or the indirect method, starting from profit and adjusting for non-cash items and working capital movements.
• Non-cash costs such as depreciation and the end-of-service gratuity charge are added back under the indirect method.
• Rises in receivables and stock reduce operating cash; rises in payables increase it.
• Buying or selling equipment, vehicles and investments goes under investing activities.
• Capital introduced, bank loans, repayments and dividends go under financing activities.

Worked example

A Sharjah building materials supplier made a net profit of AED 620,000 but sold more on credit and bought a delivery truck. The indirect method shows its cash position.

Net profit for the year	AED 620,000
Add back depreciation	AED 80,000
Increase in trade receivables	AED (150,000)
Increase in inventory	AED (60,000)
Increase in trade payables	AED 40,000
Net cash from operating activities	AED 530,000
Purchase of delivery truck (investing)	AED (200,000)
Dividends paid to partners (financing)	AED (150,000)
Net increase in cash	AED 180,000

Profit of AED 620,000 became only AED 180,000 of extra cash, because receivables, stock, the truck and dividends absorbed the rest.

Common mistakes

• Treating the cash flow statement as proof that the cash basis applies. The cash basis is a separate election limited to revenue of AED 3,000,000 or FTA approval.
• Netting VAT receipts and VAT payments into sales and purchases, so the quarterly payment to the FTA disappears from the analysis.
• Leaving the cash flow statement out of year-end accounts. Under IFRS and Ministerial Decision No. 114 of 2023 it is part of the complete set.

The law

• Ministerial Decision No. 114 of 2023 on the Accounting Standards and Methods, Article 1 (definitions of Financial Statements and Cash Basis of Accounting) and Article 2
• Federal Decree-Law No. 8 of 2017 on Value Added Tax, Article 25 (Date of Supply)
• Cabinet Decision No. 52 of 2017 (VAT Executive Regulation), as amended, Article 64 (Tax Return and Payment)

Frequently asked questions

Can a profitable company have negative cash flow?

Yes. Profit counts sales when they are earned, but cash arrives only when customers pay. Growth in receivables and stock, loan repayments or equipment purchases can use more cash than the business earns.

Is the cash flow statement required for a small LLC?

IFRS and IFRS for SMEs both include a statement of cash flows in a complete set of financial statements, and Ministerial Decision No. 114 of 2023 lists it. A small LLC preparing IFRS based annual accounts should include one.

Related terms

Balance sheet · Profit and loss statement · Working capital · Cash basis accounting · Output tax. See every term in the UAE tax glossary.

For the full picture, read our guide: Month-end close for UAE SMEs: a practical checklist.

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