Question

explain difference between Operating and Terminal Cash Flow 250 words

Answer 1

Every business has an age graph which is usually consists of the growth stage, the peak stage & then the diminishing stage, after which a business is sometimes shut down or is transferred or sold to some other industrialists. Cash flows during the life tenure of the business are classified into Operating Cash Flows, Financial Cash Flows & Investing Cash Flows. Cash flows after the closure of business are categorized as Terminal Cash Flows.

A detailed analysis for Operating Cash Flows is as under:

All cash flows, both inflows and outflows on account of general operations of business activities form part of Operating Cash flows. It includes Amount received from debtors against sales, amount paid to creditors for purchases made, electricity expenses paid, rental charges paid, water expenses paid and all other related amount paid or received related to daily business operations. In other words, it can be said that all receipts and payments which do not relate to investing or financing activities come under operating activities.

Terminal Cash Flows on the other hand can be understand in terms of a business or project which has been closed for its operating activities i.e., the main business of the company is closed and the balances which are pending for payment to vendors or other creditors and the amounts receivable from debtors or other stake holders are receivable, which may in the form of normal due amounts or security deposits submitted. All the cash flows related to such closure and final settlement covers under Terminal Cash Flows. Terminal Cash flows consists of all the cash flows may it be operating, investing or financing in nature when the company was in operations or was running the business.